Case Study #2 — NVDA $170 & $165: Textbook Low-Strike Rent Collection
💡 Reading time: ~8 minutes ｜ Series: Real-World Case Study #2
If you asked me “which two trades best represent the essence of Sell Put?” I’d pick these two without hesitation.
Trade comparison
| Item | NVDA SP $170 | NVDA SP $165 |
|---|---|---|
| Open date | 01/12 | 02/06 |
| Expiration | 02/02 | 03/17 |
| Days held | 21 | 39 |
| Contracts | 6 | 3 |
| NVDA price at open | ~$185 | ~$185 |
| Distance from stock | -8.1% | -10.8% |
| Premium in | $1,890 | $1,410 |
| Cost to close | $900 | $51 |
| Net P&L | +$990 | +$1,359 |
| Margin ROI | 1.0% | 2.7% |
| Theta decay rate | 52% | 96.4% |
Why are these “textbook”?
Reason 1: strikes far enough from the stock
NVDA was around $185. $170 was -8.1% away, $165 was -10.8% away.
That means NVDA had to crash 8%–11% in the short term before I’d face a loss. For the global AI leader, the probability of that kind of drop happening within 20–40 days is only about 10%–15%.
I put 85%–90% of the odds on my side.
Reason 2: Theta performed perfectly
Especially the $165 trade:
Opening premium: $4.70/share
Closing premium: $0.17/share
Theta ate: 96.4% of the option value
Closing cost: $51 (3 contracts × $0.17 × 100)
$0.17! Almost free to buy back. That’s the power of “right strike + enough time.”
Reason 3: nearly zero pressure during the holding period
Because the strike was far enough from the market, I didn’t need to watch the screens during the whole hold. 10 seconds a day confirming “NVDA is still above $175” was enough.
Zero pressure, zero action, steady rent.
Reverse comparison: NVDA $223 in May
| Metric | $165 (success) | $223 (failure) |
|---|---|---|
| Distance from stock | -10.8% | -0.9% |
| Estimated Delta | ~0.15 | ~0.47 |
| Result | +$1,359 | -$6,060 |
Same stock, same strategy, same operator. The only difference was the strike.
$165 let me pocket $1,359 comfortably. $223 made me lose $6,060 in fear.
The golden rule for strike selection
From these two trades (plus the painful lessons after), I distilled the strike selection rule:
| Distance from stock | Risk level | Recommendation |
|---|---|---|
| 0%–3% | 🔴 Extreme danger | Don’t trade |
| 3%–5% | 🟠 Elevated | Only short-dated (< 7 days) and small size |
| 5%–8% | 🟡 Acceptable | For experienced operators only, strict stops |
| 8%–12% | 🟢 Sweet spot | Recommended. Risk controllable, premium reasonable |
| 12%–15% | 🟢 Conservative | Premium is thin but very safe, good for beginners |
| 15%+ | 🔵 Over-conservative | Premium may not be worth the margin used |
My rule: lower bound 8%, no exceptions.
The trade-off between premium and safety distance
You might think: “If I pick a far strike, the premium is small, right?”
True. But let’s do the math:
| Plan | Strike | Premium | Safety distance | Result |
|---|---|---|---|---|
| Conservative | $165 | $4.70 (less) | 10.8% | ✅ +$1,359 |
| Aggressive | $223 | $10.30 (more) | 0.9% | ❌ -$6,060 |
The conservative plan made $1,359, the aggressive plan lost $6,060.
The gap: $7,419.
You collected an extra $5.60/share ($10.30 - $4.70) and ended up losing $7,419.
Cheap premium + wide safety distance = the real “cheap.” Expensive premium + tiny safety distance = the real “expensive.”
📌 Little Otter’s principle: For Sell Put, the strike should be at least 8% below the stock. Below 8%? You’re not collecting rent, you’re gambling. Better to collect less premium and keep a solid safety buffer.
Disclaimer: This article is a personal trading experience share, not investment advice.
Comments