Nvidia stock was gaining Monday. The chip maker has had a bad couple of weeks but analysts at J.P. Morgan think that is a trading opportunity.
The shares were up 1.2% at $177.05 in premarket trading. The stock has fallen 6.2% over the past month amid concerns about competition from Google's Tensor Processing Units.
However, J.P. Morgan analysts have an Overweight rating and $250 target price on Nvidia stock, based on its "immense" order pipeline.
"Sell Nvidia puts as a target buy strategy to take advantage of elevated volatility, as recent worries about Nvidia's chip dominance seem overdone," wrote J.P. Morgan analyst Bram Kaplan in a research note.
A put option gives investors the right to sell a stock at a certain price and time. Selling a put option on Nvidia means an investor will be paid a premium to agree to buy the stock at a set strike price.
Specifically, Kaplan and his colleagues recommend selling puts on Nvidia stock with a strike price of $160, expiring in March 2026. Such options carry a premium of $8.50 a share.
"If the strike were to be breached, we would be comfortable buying Nvidia stock at a net price of $151.50 and with 65% upside to our analysts' price target," wrote Kaplan.
Among other chip makers, Advanced Micro Devices was rising 0.8% and Broadcom was gaining 0.9% in premarket trading. Broadcom fell 11% on Friday after a poorly received earnings report.
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