Samsung has made a big deal worth $16.5 billion to produce semiconductors for Tesla until 2033, according to a source. At first, it wasn’t clear which major company was involved, but later it was revealed that it was Tesla. This agreement is a significant boost for Samsung’s foundry business, which has been struggling with unused capacity and a decline in market share. Following the announcement, Samsung’s share price jumped by up to 3.5%, marking its largest daily increase in nearly a month. So far, neither Samsung nor Tesla has commented publicly on this agreement. The partnership could have lasting effects on the production abilities of both companies. We think this long-term contract is a big win for Samsung, giving it a major source of revenue for its struggling foundry unit. This could lead to a decrease in the stock’s long-term implied volatility, making strategies like selling cash-secured puts appealing. Traders can take advantage of the newfound stability this deal brings over the next decade. Samsung has been finding it hard to compete with market leaders. Data from TrendForce shows its global foundry market share was only 11.3% in the fourth quarter of 2023. This contract is vital for improving that market share and increasing capacity use. We believe this could justify considering bullish call options for medium-term price gains. For Tesla, this agreement significantly reduces risks in its supply chain for essential self-driving and AI chips until 2033. It helps tackle a major long-term production issue, which the market should view positively. This stability boosts confidence in Tesla’s future growth plans. Historically, partnerships in manufacturing, like the one between Apple and TSMC, have created great long-term value and stability. These arrangements give companies a competitive edge by ensuring access to advanced production. We think the market may not fully recognize how important this deal is for the electric vehicle maker. The semiconductor industry is also recovering well, with the Semiconductor Industry Association reporting a 15.2% increase in global sales year-over-year in January 2024. This positive trend supports our optimistic outlook. Traders might also consider call options on semiconductor ETFs to tap into this upward momentum. Since both companies have declined to comment, there might be some short-term uncertainty that keeps options premiums high for a while. This creates an opportunity to sell that volatility. We suggest implementing strategies that could profit as the stocks stabilize after the initial news.

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