US equity index futures are set to open with significant news. Nvidia and AMD have agreed to pay the US government 15% of their revenue from chip sales in China. This deal allows them to get export licenses for semiconductors in China. The arrangement was negotiated with the Trump administration and got approval last week.

Impact On Technology Sector

Sources, including a US official reported by the Financial Times, shared this information. The news about Nvidia and AMD poses a serious threat to the technology sector. The 15% revenue fee on sales in China will squeeze profit margins and likely lead analysts to reduce future earnings estimates. We expect both stocks and the broader semiconductor ETF (SMH) to open sharply lower when US markets start this week. The best immediate strategy is to buy near-term put options on NVDA and AMD. This strategy benefits from a decline in the stock price. Because this deal has come as a surprise, we anticipate a strong wave of selling that might last for several days. To put this into perspective, Nvidia’s reports from early 2025 indicated that the Greater China region made up 21% of its total revenue. A 15% tax on that revenue means a 3.15% reduction in the company’s total global revenue, hitting the bottom line hard. This makes Nvidia’s earlier optimistic guidance, which helped boost the stock over 80% in 2025, look unrealistic now.

Options Strategy And Historical Context

Implied volatility will likely rise due to this news, driving up options prices. Another strategy for us is to sell bear call spreads, which profit if the stock price drops, remains stable, or increases slightly. This strategy also benefits from the higher premiums and from the eventual drop in volatility after the initial reaction. Reflecting on previous events, when the first major US chip export restrictions were imposed in October 2022, semiconductor stocks saw significant declines for weeks as the market adjusted to geopolitical risks. This historical context suggests that the negative market reaction will persist rather than just last for a day. Given Nvidia’s large presence in the market, this situation will likely pull down the entire Nasdaq-100 index. As a result, we are also considering buying puts on the QQQ ETF as a hedge against a broader market decline. This news may act as a catalyst for the larger market correction that many have expected throughout the summer of 2025. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now