The recent volatility in markets have sent growth stocks significantly lower and some of the best performing stocks are now trading at compelling valuations. It's leaving a great opportunity for options traders. Nvidia (NVDA) fits this compelling category where lower interest rates, combined with the multiple contraction over the past four weeks, have pulled it back to levels that warrant a potential investment.
Additionally, elevated options premiums can be harnessed for an opportunity to potentially acquire the stock at a valuation that is over 35% lower than where it was at the peak. If we review the chart of NVDA, it recently broke out from a major resistance level at $97 in late May on earnings, and after rallying to its $140 all-time highs, it has pulled back to this support level Tuesday. This presents an attractive risk/reward for a long entry.
The sell-off also has started to show levels of exhaustion where lower lows in price are no longer confirmed by momentum, suggesting a possible trend reversal. Looking at the fundamentals, NVDA trades at a 41times forward earnings, which is a 48% premium to its industry, but is expected to grow EPS and revenues at more than double the pace of its peers. Its margins also stand out as industry leading in the semiconductor space.
This means that the recent multiple contraction provides investors a rare opportunity to buy NVDA at a much more attractive valuation. With options premium on NVDA in its 99% percentile, selling put optio.