NVIDIA Covered Call at $250: Collecting $10.50 in May When IV Peaks

I sold the May 2026 covered call on NVIDIA at $250 strike for $10.50 per share — a position I initiated on April 22 when implied volatility (IV) was running at 31%, near the top of the Q2 range. At that moment, the premium was simply too high to ignore.

The structure is straightforward: 200 shares of NVDA at $227.40, plus short 2 contracts of the May 16 $250 call, collected $2,100 in premium upfront. Effective cost basis drops to $216.90 after subtracting the call premium. If NVIDIA closes above $250 on May 16, the shares get called away at that price — a 9.9% gain from my entry. If NVIDIA stays below $250, I keep both the shares and the premium, making the call "free" income.

Why Covered Calls Work in High-IV Environments

Covered calls are a defined-risk income strategy. You own the stock and sell upside in exchange for cash premium. The strategy works — meaning premium justifies the foregone upside — when implied volatility (the market's expectation of how much the stock will swing) is elevated.

In April 2026, NVIDIA's IV was running 28–32%, well above the one-year average of 22%. That elevation reflects uncertainty: earnings reports are looming, AI spending decisions from major cloud providers are still forming, and competition from AMD's latest MI350X accelerators is real. The market prices that uncertainty into options premiums. A covered call seller benefits directly from that pricing.

If IV were 18%, selling a $250 call would collect maybe $6–7 in premium. At 31%, the same strike collects $10–11. That 50% difference in cash is exactly why timing matters for income strategies.

The Position Setup

I entered the stock at $227.40 on April 21 — a price point where NVIDIA had found near-term technical support and where the risk/reward of owning through May looked balanced. The company's latest earnings (February 2026) showed continued strength in datacenter revenue (H100/H200 adoption still accelerating), but guidance for Q2 was conservative — a signal that management was being cautious about the second half of the year.

I didn't initiate this as a naked stock position. Instead, I structured it immediately with the May $250 short call, turning the stock purchase into a defined-return vehicle. Here's why: owning NVIDIA outright into May earnings is riskier than it appears. If the company guides lower on AI infrastructure capex (a real risk given slowing cloud provider spending signals in March), the stock could fall 8–12% in a single session. A covered call caps that loss at 4.5% below my entry (the call premium acts as a buffer). That trade-off — capped downside vs. defined upside — is the entire logic of the strategy.

The May 16 expiration gives the position 24 days to resolve. That's long enough for clarity on earnings (typically May 5–7 for NVIDIA), short enough to collect most of the time-decay benefit (theta) if the stock stays range-bound.

Why May 2026 Looked Asymmetric

Three factors lined up:

1. IV was elevated. 31% IV reflects real uncertainty, but it's not panic pricing. Panic would be 40%+. Elevated IV is the premium we want to sell.

2. Earnings timing created two-day clarity. NVIDIA reports May 5. If guidance is positive, the stock will likely rally through $250, calls get assigned, and I exit with a 9.9% return in two weeks — exceptional for a protected trade. If guidance disappoints, the stock likely stays below $250, I keep the shares and the premium, and I've effectively bought NVIDIA 4.8% cheaper ($216.90 net entry).

3. Current price was not expensive. At $227, NVIDIA trades roughly 28x forward earnings (2026 consensus is $8.20 per share). That's not a screaming buy, but it's not extended either. The stock deserves a covered call at $250 — a level that gives it room to run if the narrative turns positive, but doesn't require perpetual upside.

Understanding the Downside Floor

This is where discipline matters. If NVIDIA falls to $200, my loss is not unlimited — it's capped at $27.40 per share ($227.40 entry minus $200 exit price), or 12% from entry. But I collected $10.50 in upfront premium, which offsets that loss to 5.3%. That's my actual maximum loss in a catastrophic bearish scenario.

In the more likely scenario where NVIDIA drifts 3–5% lower on soft guidance, the covered call premium I collected ($10.50) nearly erases the loss, and I've captured the full theta decay benefit without owning a stock that's actively working against me. That's the hedge.

AI Stock Risks 2026: What Could Go Wrong I'm Taking

Covered calls don't eliminate risk — they transform it. I'm capping my upside at $250 (9.9% return) to collect income today. If NVIDIA releases blockbuster guidance and the stock runs to $300, I'll exit at $250 on the call assignment, missing the $50 additional move. That's the cost of the premium I collected.

This is a trade-off I'm comfortable with in a stock already priced at 28x forward earnings, in a sector (AI chips) where visibility is structurally poor. If I had strong conviction that NVIDIA would reach $280+, I would own shares outright without selling calls. I don't have that conviction in May 2026, so I'm monetizing that uncertainty instead.

What Success Looks Like

Target exit: either at $250 (call assigned, shares called away) or a buyback of the call at 0.10–0.20 if NVIDIA rolls over below $240 in the final week of May. If that happens, I'd be looking at a return of $10.30–$10.40 on the premium — closing the position at 98%+ of maximum profit with still-intact shares.

The position is live through May 16 earnings. That's the pivotal date. After that, I'll either be exiting the full structure at $250, or I'll be repositioning the call for the next expiry cycle.

This is what defined-risk income looks like — owning quality, collecting premium in high-IV moments, and letting the earnings data resolve the position into success or controlled loss.

— Ruslan Averin