Beijing has announced that the United States is allowing the sale of Nvidia H20 GPUs to China. The Chinese commerce ministry is optimistic about this development and wants to encourage cooperation between the two countries. The ministry also called on the US to remove what they call unreasonable trade barriers affecting China. They pointed out that working together can benefit both nations, promoting a constructive relationship for improved economic ties.

Investment Implications

With Beijing’s confirmation, we view this as a positive signal for potential gains in the underlying stock. Removing this major geopolitical concern allows us to refocus on the company’s strong position in AI. This news clears a significant obstacle that has been affecting investor sentiment for several months. For derivative traders, this suggests a bullish outlook using call options. With the stock already rising over 80% this year, this news provides new momentum for further growth. We recommend targeting strike prices above the recent all-time highs to capitalize on this trend. However, we need to be aware that implied volatility for these options is still high, with 30-day IV often over 50%. This makes direct call purchases costly and susceptible to volatility drops. A more advanced strategy is necessary to control costs effectively.

Risk Management Strategies

We suggest using bull call spreads to manage risk and lower initial costs. By selling a higher-strike call while buying a call, traders can reduce their entry costs for a continued upward movement. This strategy works best when there is a steady rise rather than a sharp jump. The approval of the H20 GPU is financially important. It could open up a market that some analysts believe could be worth over $7 billion each year. This secures valuable revenue that was previously threatened by trade restrictions, allowing the company to compete with emerging local competitors in China. This decision is a significant win for the company’s CEO. Huang has skillfully managed the complex US-China landscape to sustain market access. This outcome strengthens our confidence in management’s ability to navigate geopolitical challenges. Looking ahead, the next major event will be the earnings report in late May. We expect volatility to increase as that date approaches. Traders should think about making positions in the coming weeks before the pre-earnings increase in implied volatility raises entry costs. For those willing to take on more risk, selling cash-secured puts is another strategy. With high premiums, we can earn attractive income by selling puts at levels where we would be comfortable owning the stock. This approach takes advantage of the high expectations already built into the options market. Create your live VT Markets account and start trading now.

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