Nvidia experienced a 15% drop in November, making it the worst performer on the Dow Jones Industrial Average for that month. This decline happened as investors worried about a potential bubble in AI and tech stocks. Despite strong returns in past years, tech stock valuations are still very high. In the last three years, Nvidia had an impressive average annual return of 119% and a 68% return over five years. Even with the 15% decrease in November, Nvidia’s stock has risen 33% this year. The drop wasn’t related to its third-quarter earnings, which were impressive, showing record revenue and profits, along with a predicted 14% revenue increase for Q4.

Worries About Nvidia’s High Valuation

Concerns about Nvidia’s high valuation likely contributed to the selloff. Its price-to-earnings (P/E) ratio fell from 57 to 43. Currently, its forward P/E is 23, and its five-year PEG ratio is below 1, hinting at possible long-term undervaluation. Additional worries include possible trade restrictions with China and Google’s development of AI chips, which could impact Nvidia’s standing in the market. Despite these issues, analysts believe Nvidia’s stock could reach a median price target of $225 per share, suggesting a potential 26% rise from its current value. The stock’s lower valuation and reasonable forward P/E make it appealing in the AI sector. Nvidia’s drop of 15% in November 2025 reflects a clash between short-term fears and long-term fundamentals. The decline is primarily driven by worries about an AI bubble and Nvidia’s high valuation, which has adjusted from 57 to 43 times earnings. This adjustment, despite record earnings in Q3, sets an interesting stage for the weeks ahead.

Effects of the Sharp Sell-Off on Options

The sharp sell-off has sent Nvidia’s 30-day implied volatility into the 75th percentile for the year, leading to higher option premiums. This situation makes it wise to consider selling cash-secured puts with January 2026 expiration dates. This approach allows us to collect the high premium and, if the stock falls further, buy shares at a better price. The overall environment for tech stocks appears to be stabilizing. The latest CPI report for October 2025 showed core inflation easing to a 2.8% annual rate, the lowest in over three years. This relief may prevent the Federal Reserve from being too aggressive. With less risk of a market downturn, there is a stronger case for a recovery in quality growth stocks. For those looking to invest directly on a rebound towards the analyst target of $225, a bull call spread is a smart choice. We could buy a January or February 2026 call option while selling another with a higher strike price just above that target. This strategy minimizes our upfront cost while still allowing us to benefit from a potential upside. We saw a similar recovery pattern after the significant tech correction in 2022, where strong-performing companies bounced back more quickly than others. The current forward P/E of 23 and PEG ratio below 1 indicate that Nvidia’s growth story is still strong. This historical context gives us confidence that November’s drop is more of an opportunity than a warning. However, we must remain cautious about potential trade restrictions with China and increasing competition from companies like Google that are developing their own chips. These uncertainties highlight the importance of using defined-risk option strategies rather than assuming unlimited risk. Our goal is to position ourselves for recovery while also safeguarding against another downturn. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now