By: Jerry Nix | Freewavemaker, LLC                                     Date Published: 06/06/2024

NVDIA Stock:

On or around May 22, 2024 Nvidia (NVDA) had an earnings announcement. Based on what was reported last quarter as compared to this quarter, the earnings did not look very good and many thought the stock may tank. Usually, bad earnings do not make a stock go up. Since I do little stock investing (and a lot of options investing) I did not pay much attention to the earnings but a friend of mine does. Here’s what I was able to find about earnings over the past few quarters though:

• Four Quarters ago           
• Three Quarters ago         
• Two Quarters ago           
• Last Quarter                     

Now let’s take a look at the stock chart …

Now you tell me, if earnings fell from $4.93 per share to just $0.60 per share, how is it that that the stock has gone up from about $9.52 per share to a whopping $1,224 per share just since the 22^nd of May, 2024?

The answer may well lie in the little yellow circle at the bottom of the chart … Let’s take a look at what that says when I open it:

You see, even though the earnings were not that good Nvidia announced that they would be doing a 10:1 stock split on June 10, 2024. Wow, that means that if a person held 100 shares of stock on June 9^th on June 10^th, they would own 1,000 shares. Now the price would also be cut. For example, if the stock was valued at $1,200 per share on June 9^th on June 10^th would be valued at 1/10^th the price or $120 per share.

Synthetic Stock

Like I said, I do not do a lot of stock buying, but I do use a technique with options knows as “Synthetic Stock.” This is nothing more than an option spread involving a Call Option that I buy and a Put Option that I sell. I buy a call option when I think the stock is going up in price (which would cause the premium I paid to move up in price) – or I may sell a put option when I think the stock is going to move up in price (which would cause the premium I received to move down in price). Both options are considered a “bullish” investment move.

Normally, each option contract is valued at 100 shares of stock (be it a Call or a Put Option). However, in the case of a corporate merger or stock split – things can get a little harry so I normally choose to exit my positions before the event occurs. It seems in the past I’ve almost always gotten “Ripped Off” by the folks who make the rules and adjustments on options contracts when things happen.

Here’s what happened in this case:

On April 29, 2024 I entered into a contract to purchase 1 Call Option on NVDA with a strike price of $880 and an expiration date of 03/21/2025. Therefore, I was willing to hold this option to a maximum of 330 days when the option could be worth a lot or worth $0.00. Naturally you can get out of these contracts on any given trading day.

The cost of this contract was $17,826.66 – and if I’d bought 100 shares of the stock on that day when the price was about $880 (since I try to do these as close to the money as possible) I would have paid $88,000 for the stock.

On the 3^rd of this month (June) I closed out this Call option and took in proceeds of $35,840.34 – which provided me a gain of $18,013.68 or 101.05% over the $17,826.66 that I’d paid for the option. Not bad for a little more than a month of holding it.

At the same time, to help finance the Call Option, I sold the $880 Strike Price Put Option with the same expiration date (03/31/2025) and took in a premium into my account of $14,432.22. Yes, that is what someone was willing to pay me to give them the right to sell me their stock for $880 per share. Remember, as the price goes up on the stock, the price of the put option goes down. Why would they want to sell me a stock for $880 if the price of the stock is actually going up? The idea is to “buy back” the put option when the price has fallen far enough that I could make a decent gain.

In this case a few days ago when I closed out this transaction, the price I had to pay to get free and clear of buying the stock at $880 per share was $5,842.66. So, if I was paid $14,432.22 and I had to pay $5,842.66 I literally made a return on my capital of $8,589.56 or 147.01% over a period of just 35 days.

Now let’s put these two transactions together as an option spread that was done in one transaction for commission purposes:

As the table shows, the net cost to me to put this trade on was $3,394.44. My total proceeds just 35 days later when it was all said and done was $29,997.68 and my total return or gain was $26,603.24. That is a percentage gain over 35 days of 782.73%. To get that on a daily return I’d have to earn about 22.39% per day (including holidays and weekends) – and the annualized return … had this continued for a 365-day period would have been in excess of 8,173%.

And the Rich get Richer …

I am in no way what I would consider Rich at this time in my life, nor am I sure I’d want to be this late in the game. However, I get so tired of hearing, “Well the Rich just get Richer and the Poor just get Poorer.”

I am certain there are other investments that can do this well … but I don’t know what they are. I am also certain that a lot of the so-called wealthy was able to get that way by doing investments such as this. Yea, they talk about the stock market and owning stock. But do we know if they really own stock – or do they simply create “Synthetic Stock” such as this? I’d be willing to bet that many of them (including the Oracle of Omaha – Warren Buffett) has done of few of these types of investments.

Warning: Not all investments will make money like this … and before venturing into such a “radical” idea make sure you understand the details about options. If you don’t know anything about them, get some education. They are not that difficult and you can learn all about them by simply going to You Tube and searching on “Stock Options” which will give you thousands of hours of free education. Don’t think for a moment that this is only for the “privileged” in this country or in the world. If you feel they are privileged it is likely that they put themselves in a position of privilege and you can to.

Have a great investment experience,

Jerry Nix| Freewavemaker, LLC