Buying NVDA puts: hedge math and breakevens

A long put is the right to sell 100 shares at $200 until August 28, 2026. Max loss is the $935 premium; max profit is $19,065, reached only if NVDA goes to zero.

Below $190.65 the position is in profit at expiry, gaining one-for-one with each dollar the stock falls. Above $200 it expires worthless — which is the good outcome if you own the shares.

Puts carry a structural headwind: skew. Downside strikes on NVDA trade at higher implied vol than equivalent upside strikes because everybody wants the same protection at the same time. You are buying the expensive wing, always.

As a hedge on 100 shares, this put caps the loss below $200 at the cost of 4.7% of position value — an annualized drag of 63.0% if you run it continuously. That is the honest price of permanent protection, and it is why most people don't.

The modal outcome for a bought put is expiring worthless. NVDA above $200 at August 28, 2026 costs the full $935, and stocks drift up more often than down.

If you are hedging, be clear about what you are insuring. One put covers 100 shares — $20,075 of NVDA. A hedge that covers a quarter of your position is a quarter of a hedge.

The ceiling on a spread is a real cost, not a theoretical one. It is paid exactly in the scenarios where your thesis worked best, which is when it hurts most to notice.

The one name on this list where a call spread's capped upside genuinely costs you money often enough to notice. NVDA's post-earnings moves have repeatedly cleared the short strike of any sensibly-priced spread, so if your thesis is a re-rating rather than a drift, the spread is the wrong instrument and you should pay for the tail.

NVDA's Aug 28 strikes are $5 apart near the money (2.49% of spot). That is a coarse ladder: one rung is a large fraction of the implied move, so precision on the short strike is an illusion. 114k contracts of open interest on Aug 28 is deep enough that multi-leg orders fill near mid at retail size. 24 strikes on that expiry — 50% of the board — carry prints that agree with their own implied volatility and hold up across the ladder, and those are the strikes priced here. Enormous volume and open interest; complex structures fill near mid even in size, including through the print.

Skew is inverted: the 25-delta CALL implies 2.1% more vol than the put. That is the market pricing upside risk above downside risk — a squeeze, a takeover rumour, or a crowded short. Owning upside on an inverted skew means paying the expensive side of the surface, which is worth knowing before you buy the call. The term structure is backwardated — Aug 28 implies 2.9% MORE vol than the following month. That is the signature of a dated event inside the front month, and it is the strongest argument for picking the expiry that sits behind it.

At 46% ATM implied vol, the Aug 28 options are pricing a one-standard-deviation move of $25.16 over 27 days — roughly −12.5% to +12.5%, or $175.59 to $225.91. That band is the free part of the move. Anything your structure needs beyond it is the part you have to be right about.

The specific way people lose money on NVDA: Sizing a short-premium NVDA position off the credit rather than off the gap. The credit is large because the gap is large.