We will explore an options spread strategy that can profit in up or down markets. NVIDIA stock is on a PowerTrend ‘sell’ signal as it is trading below the 10-Month Simple Moving Average. We initiated a bearish debit spread for NVDA using put options.
Put option spreads have a long position and a short position. The long position profits as the underlying stock move down in price. The short position profits as the underlying stock move up in price.
The Put Option Spread Analysis below displays the profit potential for an actual option spread trade that we own for NVDA. We purchased the NVDA 165-Strike put and sold to open the NVDA 150-Strike call. This created a bearish option spread.
This analysis reveals the profit potential for this option spread trade assuming various price changes for NVDA at option expiration from a 10% decrease in price to a 10% increase in price.
The analysis reveals that if NVDA remains flat or decreases at all at option expiration, we will realize a $395 profit and a 35.7% return (circled). A 5% price increase in NVDA would also result in a 35.7% return as would a 10% increase in NVDA (circled). A 35.7% return when the underlying stock/ETF is up, down or flat is a great strategy for navigating volatile or non-trending markets.
Learn more about option spread trading here.