The stock market, now and then, delivers instances of traders hitting significant wins, demonstrating that anything is achievable. The market has substantial risks, from colossal losses to remarkable gains. Recently, one trader seemingly defied the odds.
Per a post on X by stock market analyst Gurgavin Chandhoke on April 20, a trader transformed an $800 investment into a staggering $100,000 profit within mere hours by purchasing options in Nvidia (NASDAQ: NVDA).
How did this investor profit from this NVDA options trade?
Armed with the belief that Nvidia’s stock price was poised for a significant downturn, the trader acquired far-out-of-the-money put options with a strike price considerably lower than the current market value of Nvidia shares.
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Nvidia shares experienced a sharp decline. In turn, the put options value surged, with the stock price plummeting below the put options’ strike price. On April 19, NVDA lost 10% of its value and fell from $846 on a previous close to $762.
Swift action ensued as the trader exercised the options or sold them on the market, capitalizing on the price differential.
In a matter of hours, what began as an $800 investment had ballooned into an astounding $100,000 windfall, underscoring the potential rewards – and risks – inherent in the world of options trading.
Understanding the risks of options trading
If Nvidia’s stock price rises following the trader’s purchase of put options, the outcome would likely result in losses on the investment, as the increase in stock price would decrease the value of the put options. In essence, a rise in Nvidia’s stock price would result in diminished value for the put options and potential losses for the trader.
This is crucial for investors to understand: When trading options, your profits might be high and swift, but so could the losses.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
