The leading GOP House China committee member has expressed opposition to the resumption of Nvidia H20 chip shipments to China in a letter to US Commerce Secretary Howard Lutnick. Nvidia shares have seen fluctuations this week, with a new all-time high of $174.25 but currently trading at $172.37.
This week, Nvidia shares have surged by 4.54%, with an annual increase of 28.29%. Nvidia’s price has been climbing since April and remains above its 50-hour moving average at $167.69, with the 100-hour moving average at $162.56 providing support.
Nvidia Moving Averages
In June, price dips below the 50-hour moving average found support at the 100-hour moving average. These moving averages are key in defining support levels for Nvidia’s stock, indicating potential direction shifts.
Traders are keeping a close watch on these support levels for signs of future market movements. The ongoing strong investment in AI is a supporting factor for Nvidia, but traders remain alert to possible price corrections, aiming to gauge how far any pullback may extend. Focus will shift to other corrective targets if prices dip below these critical support levels.
We recognize the immediate tension between Washington’s stance on chip sales and the market’s bullishness on AI demand. The objection from the House committee member, Representative Michael McCaul, injects headline risk that can create sharp, short-term price swings. This environment makes options pricing, or implied volatility, more sensitive to any news regarding chip exports.
Trading Strategies
Given the powerful uptrend, we believe buying call options or selling put credit spreads on any dips toward support is a viable strategy. As long as the price holds above the 50-hour moving average, the path of least resistance remains upward. Recent data confirms this, with major cloud providers like Microsoft and Google collectively forecasting capital expenditures to exceed $200 billion in 2024, a huge portion of which is dedicated to AI hardware.
Conversely, the stock’s near-record high and the letter from the congressman present an opportunity for bearish plays. We would consider buying put options if the price breaks decisively below the 100-hour moving average at $162.56, as this has historically been a critical support zone. With 30-day implied volatility currently elevated near 48%, even a modest downturn could yield significant returns on put options.
For those uncertain of the next immediate direction but expecting a significant move, we see merit in long volatility strategies. A long straddle, which involves buying both a call and a put option with the same strike price and expiration, could be effective. This position profits from a large price swing in either direction, capitalizing on the tension between the strong fundamental trend and the unpredictable geopolitical risks.
We have seen this pattern before, such as the October 2023 restrictions on advanced chip sales which caused a temporary sell-off before the uptrend resumed. History suggests that while political headlines can create short-term dips, the market has consistently prioritized the overwhelming long-term demand for AI infrastructure. Therefore, we will treat any politically-driven weakness toward the key moving averages as a potential buying opportunity until the technical picture proves otherwise.
