options trading / backtesting / stock research / risk management
Should You Buy NVIDIA Calls After It Drops? I Tested 88 Gap-Downs
I lost nearly $8,500 on my NVIDIA calls after the CEO scandal, so I tested whether a drop like this is a good time to buy. I bought $7,000 of 6-month at-the-money calls on every day NVIDIA opened down 4% or more, and on the same kind of gap-down in 12 related chip stocks: AMD, Intel, Broadcom, Qualcomm, Marvell, Arm, Astera Labs, Synopsys, Lattice, NXP, MACOM and Analog Devices. That is 88 gap-downs from 2022 to 2026.
For NVIDIA, buying at the open was down $199 a day later and $311 after a month, then up a median $11,066 after 6 months. Buying at the close made $14,480, and waiting a week made $12,637. Buying on a random day instead lost $736, and all three gap-down entries beat their random day in 11 of 13 drops. If you already hold calls, adding more at the open or close beat just holding in 10 of 13 drops.
The catch: the typical NVIDIA buy fell 58% from its high before it recovered, and across all 13 chip stocks about 1 in 4 accounts that doubled down ended down half or more. The other chip stocks rose a median 19.6% in the 6 months after a gap-down, barely above the 18.9% a 6-month call needed to break even. NVIDIA rose 53.2%. My options data covers four years, 72% of the drops happened in 2025 and 2026, and NVIDIA had only 14 of them. This is not financial advice.
Transcript
0:00I lost nearly $8,500 because the CEO of the world's largest company couldn't keep it in his pants. The question is is now the time to buy? So I tested this explicitly on every day NVIDIA opened down 4% or more in the past 4 years.
0:20But I didn't stop at just NVIDIA.
0:22I also tested similar chip stocks like AMD Intel Broadcom Qualcomm and other chip stocks like them.
0:31I analyzed 88 gap downs in total and tested 3 things explicitly.
0:37Number 1 I tested whether I bought $7,000 of 6 month calls right at the open.
0:45Number 2 I waited and bought the same calls at that day's close.
0:51And number 3 I waited 1 full week and then I decided to buy.
0:56I compared all 3 to just simply buying on any random day.
1:02And here's what I found.
1:04The first month goes nearly nowhere.
1:07One day after buying at the open the NVIDIA calls are down $199.
1:12After a week they're down $246.
1:15And after a month they're still down $311.
1:20But I just held and held and held and held for 6 full months.
1:26The calls are up $11,000.
1:31If you bought at the close it did even better at $14,480.
1:39Waiting a week landed between the middle at $12,637.
1:45Now you might just say NVIDIA is in a bull market.
1:49If you bought NVIDIA at any time you'd gain tens of thousands of dollars.
1:55So I tested this too.
1:57I bought on a random day and that lost $736 in a month.
2:04All 3 gap down strategies beat a random day in 11 out of 13 drops.
2:11Now what about me?
2:13I already own calls so what should I do should I double down?
2:19If I decide to just hold then day 1 hurts a lot.
2:23My calls lose $843.
2:27And only 2 of 13 drops were up the next day.
2:32But again if I just decided to hold for 6 months my calls made $4,400.
2:41If I double down at the open then I made $13,460.
2:48And at the close I made $15,650.
2:53For NVIDIA adding more to the position beat just holding in 10 out of 13 drops.
3:01But there's a catch.
3:03Along the way the typical NVIDIA buy fell more than half from its high before it recovered.
3:11And across all chip stocks about 1 in 4 accounts that doubled down ended up losing 50% or more.
3:20This didn't apply to NVIDIA specifically but it applied to chips in general.
3:26Now if you watched my other video you'd know that if you bought puts you also would have lost a bunch of money I thought that I had done my analysis wrong so I decided to dig in even further and the results shocked me I looked at what these chip stocks actually did in the 6 months after it gapped down and I saw that the stocks actually did bounce back Not by a little bit like 1 or 2 across the other chip stocks the median gain after a drop was around 20% in 6 months So why did the calls barely make any money Because a 6 month call isn't cheap The break-even price was around 19 and the typical chip stock cleared that just by a small hair so the calls barely made any money But the puts outright lost because the stocks eventually recovered on average NVIDIA was the odd one out After its gap downs it rose 53% from the bottom nearly 3 times the break-even price That's why buying NVIDIA calls crushed it on average Now this analysis is a little limited.
4:42It only goes back for 4 years because that's as far back as my options data goes.
4:49Most of these years were in a bull market and 72% of these drops happened in 2025 and 2026.
4:58Also NVIDIA only had 14 drops like this which is a very small sample size.
5:05So if this turns into a prolonged bear market.
5:08If the board decides to fire NVIDIA or if there are strict government regulations as a result of this news then this analysis misses all of this.
5:20This is not a typical stock market news day like most other drops But purely based on the data.
5:29Buying after a drop like this has paid off for NVIDIA as long as you had the stomach to hold for 6 months.
5:37And you'll see your account bleed dry for days on end.
5:42The question is can you really handle that?
5:45Follow for part 3 where I do something a little different where I do my own fundamental analysis.
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