US stock futures are showing slight increases, with S&P futures rising by 6.05 points. NASDAQ is set to increase by 8.75 points, and the Dow is up around 65 points.
US companies have announced a record $983.6 billion in share repurchases this year, with predictions suggesting this could exceed $1.1 trillion. This surge is led by tech giants such as Apple and Alphabet, as well as major banks like JPMorgan Chase and Morgan Stanley. Buybacks are being favoured over capital investment due to strong earnings, tax benefits, and excess cash amidst trade policy uncertainties. While these boost earnings-per-share and stock prices, there are concerns about inflated valuations and short-term focus.
US Companies and Share Buybacks
AMD and Nvidia have agreed to pay a 15% fee on certain chip sales to China, imposed by the US Government. AMD shares have fallen by 1.74%, while Nvidia’s have decreased by 0.41%.
President Trump is scheduled to meet Intel’s CEO, Lip-Bu Tan, today. Last week, Trump demanded Tan’s resignation due to ties with China, threatening Intel Chip Act funds under national security pretences. Intel shares have risen by 2.56%.
The unprecedented wave of share buybacks, projected to hit $1.1 trillion, creates a strong support level for the broader market. We saw buybacks total nearly $806 billion back in 2023, so this year’s surge provides a significant cushion against major market downturns. For derivatives traders, this suggests that selling out-of-the-money put options on indices like the S&P 500 (SPY) could be a sound strategy to collect premium.
This massive corporate purchasing power helps explain why the CBOE Volatility Index (VIX) has remained relatively low, hovering in the mid-teens, despite pockets of geopolitical tension. This environment favors strategies that profit from stability in the general market. However, this calm at the index level masks significant turmoil brewing within specific sectors.
Government Fees on Semiconductor Sales
The government’s new 15% fee on certain AMD and Nvidia chip sales to China introduces a serious element of uncertainty for the semiconductor industry. This is a direct hit to profitability and signals more aggressive federal intervention, which historically leads to sharp price swings. We need to be prepared for higher-than-normal volatility in the entire semiconductor sector for weeks to come.
Given the political risks now attached to chip stocks, we should consider buying options that profit from large movements in either direction. Looking back at the sector’s reaction to the 2022 export controls, the semiconductor ETF (SOXX) saw its volatility spike over 40%, creating huge opportunities for options holders. Therefore, purchasing straddles or strangles on AMD and Nvidia seems prudent.
The situation with Intel is a classic binary event, where the stock could move dramatically based on the outcome of a single meeting. The current implied volatility for Intel’s weekly options is elevated, reflecting this uncertainty. Traders can use these short-dated options to make a direct bet on the outcome, as the stock is likely to move far more than the broader market.
