Nvidia, one of the year’s hottest stocks, is about to rip even higher

Shares of Nvidia have almost doubled this year, and Todd Gordon says the party's not over yet for one of the year's hottest chip stocks.

Nvidia shares have rallied more than 98 percent this year, making it the sixth-best-performing stock in the S&P 500.

"The strong story stock in the chip space here has done quite an interesting technical pattern here, pulling back into what I see is a good zone of established longs," the TradingAnalysis.com founder said Thursday on CNBC's "Trading Nation."

Gordon is referring specifically to what he's calling an island reversal. In his own words, the trader describes an island reversal as consisting of a gap against a trend, in this case an uptrend, followed by a gap back in the initial trend direction. The stock has fallen 3 percent from its high last week, but a recent gap back up in Nvidia stock leads Gordon to believe that the chipmaker has returned to the uptrend it had followed, paving the way for more highs ahead.

"This stock is just all over the place. I love the upside here to go and retest the old highs up around $220," he said.

To play Nvidia for a move higher, Gordon wants to buy the Dec. 8 weekly 212.5-strike calls and sell the Dec. 8 220-strike calls for $3.10, or $310 per options spread. If Nvidia were to rally and close above $220, or roughly 4 percent from current levels, by Dec. 8 expiration, then Gordon could make a maximum reward of $440 on the trade.

But if Nvidia were to close below $212.50 on Dec. 8, then Gordon could lose the $310 premium he paid to make the trade. In order to avoid the loss, Gordon establishes a certain point for him to step out of the trade.

"If the $3.10 of premium we're outlaying gets cut in half, because the trade is not working, down to about $1.60 or so, cut the trade, contain the risk and simply move on," he said.

Nvidia rallied 1 percent on Thursday, still sitting near its all-time highs.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more

Connect