Selling Opportunity setup -NVDA

٢٠ نوفمبر

In general me and my brother, we are long on NVDA, but since we noticed multiple red flags, we believe that in the short term there are more odds in favor of a correction than a continuation. We take the upcoming earnings as a trading event and we access the risks versus the potential upside return.

Our trading system gave us a signal for a long entry on the open of 19 November 2024.

We will now show you the red flags:

#1 Pattern similarity

Feels like we traded this pattern before, see the current pattern of Nvidia VERSUS an old pattern of the SPY:


You can clearly see, that there was a correction and a long sideway action, then the price did a NEW HIGH on a small upward channel of higher highs and higher lows.

#2 Not the right volume pattern

You would expect that when the price is rising and makes a new local highs, the volume will increase on the upside, but there is a rise on shrinking volume. Also most of the relative large volume is on the red bars down on the selling side.

Let us do the following thought experiment, if a small edge fund wants to book profit on NVDA which I am sure such an edge fund exists since we are at all new time highs, they would put sell orders so a big edge fund will fill them and they will book a profit. This should be manifested as a large spike in volume, especially when the stock reached a new all-time high twice. But we did not see any spike in volume!

This means as Jesse Livermore liked to put it, the stock is not acting right ! We wanted to see Nvidia making a new high on large volume and push forward to $180 as analysts forecast, but it didn't.

We suspect that the rising in price, is a retail activity being allowed by the puppet master, so the puppet master could sell out Nvidia as high as he can. Hence he is the Master, and the public is the puppet. They are being played to believe that Nvidia will get to $180 right now.

Somehow we feel it's a red flag, that NO VOLUME is entering the market on a rising price. This COULD happen in a case where all the market and public are so bullish on Nvidia that everyone just lifted up all their sell limit orders to $160 plus, so this explains the non existance of volume. However, the odds are not in favour of this behavior since it is not normal human behavior of profit taking.

#3 No shakeout of the public

Previously the market shaked out all the non believers, but now, they just let the stock price chip its way up with higher highs and higher lows to reach $150 but not break it? ... No stop loss hunting to get liquidity from the market? looks suspicious.

#4 Options Chain Large Size on the long side (calls)

At first we wanted to buy options to the long side, but since we saw we were less likely to profit from it since IV (Implied volatility) is 100%+ it made the options prices too expensive, and no room for a reasonable profit. The day after earnings, the IV will drop dramatically and we saw in our indicator that it is a losing bet UNLESS it will actually reach $180 after earnings is released and we are skeptical about it.

See the options volume leaders:



You can clearly see that Nvidia is a leader of sold call options above $150 (open interest).
I don't know if you read the options book, but statistically most options end up worthless...
This is how the market makers make their money...
and it is profitable... to collapse the price of the stock... by selling hardly the stock... so all those options will end up worthless...
Because it is PROFITABLE to make them worthless, we somehow find it hard to believe they will let all those options become at the money by a price jump to $180 right now as analysts say it expects to go. Because this means they will lose lots of money on those sold OUT OF THE MONEY options.

There are substantially more amounts of Calls than Puts. (1.61 ratio).
The volume of options is crazy, this is serious money.
The options in the interesting prices ($150 for example) are 4 times larger calls than puts.

There could be a possibility that if the market sentiment of Nvidia is so bullish that they can't sell the stock down, they will have no choice but to edge themselves, and buy the stock itself which will ultimately drive the price of Nvidia up. We estimate this low in likelihood, given recent other earnings that pushed the stock prices down when the earnings are released after hours.

So what can you expect next?

You can expect this for sure:

If the post-earning movement will be to the upside, your portfolio of other stocks (the market) will not gain the same amount of return.

If the post-earning movement will be to the downside, since all the indexes will get hurt (due to high weight of NVIDIA), the whole market will get HURT, so NVIDIA loss will be reflected also in other stocks in your portfolio.

THE SELLING SETUP is to wait for NVIDIA to crush on earnings so it will crush the market, and then it is the happiest day for DAY TRADING ! to the short side...

Since, the odds for short on the post-earning day, are very high, and it is like a present from the market, since you can prepare yourself to it by waiting for the money to be on the floor, so you just pick it up.

٢١ نوفمبر

تم فتح الصفقة

What happened after earnings were released:

٢٤ نوفمبر

أغلقت الصفقة: تم الوصول للهدف

So, we can see that they made a lot of money by making sure all the options will be worthless... (on Friday's close)

There were a lot of options sold above the price $145 (calls) and below $140 (puts).

By pushing the price to $142 they made sure all the popular strikes will be worthless.
Which translates to huge profits for the writers of options...

Does this feel to you like a coincidence?
If you had a lot of money to manipulate price (even at a small loss) to profit hugely, would you not do it?
Ofcourse you would... so you need to trust the greed of human nature and expect the natural human behavior...

The prediction that Nvidia would not pass $150 was correct as the price was immediately rejected from this area dramatically.

If you know that the price will be rejected from this area, this is a very good short-setup opportunity for day trade.

Here you can see how they pushed the price down from $150 after the earnings report.



Here, you can see how the IV (implied volatility) of the options was reduced dramatically to 72.3% from 139%.

This means that all the guys who bought options on either side, did not get any money from it, since the price of options reduced dramatically when the IV dropped.

You can also see it very well when you do IV drop simulation on our options indicator. This way you know in advance you don't have a chance to make any money from this type of options. Even if the price rose to $155 you would be lucky to just break even with this IV drop...

٢٤ نوفمبر

ملاحظة

See on pink the open interest of how MANY options are WORTHLESS versus the options that was exercised...

See the MASSIVE amount of options at a price $150 of 207,000 quantity.

Do the inverse thinking that if those options were exercised... multiply how much money the market makers would need to insert to the market to edge themselves...

Lets do the math...

$150 price of 1 stock
multiplied X
207,000 options
multiplied X
100 ( each option is a contract of 100 stocks)
equals =====
3,105,000,000 USD that they need to pay to buy the stock to edge themselves...

Yes... this is a lot of money...
and this does not include other strikes...