Shares of Intel jumped 25% at the opening bell after Nvidia announced a $5 billion investment in Intel common stock. This investment comes as the two companies plan to work together on custom data center and PC products over several generations. Intel’s shares are now at their highest level since July 2024, nearly doubling from their recent low earlier this year. Nvidia plans to buy Intel shares at $23.28 each, acquiring about 4% of the company, which is a small part of Nvidia’s $4 trillion market value.

Historic Collaboration

Intel will create a custom chip for Nvidia’s data centers and a PC chip that combines Nvidia’s NVLink with both companies’ technologies. This partnership is seen as a groundbreaking step to merge Nvidia’s AI capabilities with Intel’s CPUs. Both companies believe this collaboration will expand ecosystems and pave the way for the next era of computing. They will hold a joint press conference at 1 PM ET to discuss their plans. With Intel’s shares soaring 25%, the implied volatility of its options has surged. The 30-day volatility for Intel’s stock has jumped from around 40% to over 80%, making options very expensive. Due to this high cost, focus should shift to strategies that sell this inflated premium. For those confident in this new valuation holding, consider selling cash-secured puts on any small drops in the coming days. The high premium collected can provide a safety net and allows for a better entry point if the stock declines. Weekly or monthly puts with strike prices around $22 or $23 may now offer unusual returns.

Option Strategies and Market Reactions

If we anticipate more upside but are cautious about high costs, bull call spreads are a smart choice. You can buy a November $24 call and sell a November $27 call to limit cost and risk. This strategy profits if Intel’s stock continues to rise toward levels last seen in summer 2024, without fully paying for the increased volatility. This situation feels reminiscent of other major strategic investments from the early 2020s, which often established long-term support for the target company’s stock. Speculation about a possible multi-year acquisition path—though distant—should limit downside risk in the near term. This further supports the idea of selling puts, as a complete reversal of today’s gains seems unlikely. Market data shows call volume has soared to over 15 times its 20-day average, with a strong focus on October and January expiration dates. The put-to-call ratio has dropped below 0.4, indicating strong bullish sentiment after the announcement. We will need to monitor whether this intense sentiment persists or creates opportunities for contrarian strategies as initial excitement fades. Create your live VT Markets account and start trading now.

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