Nvidia (NVDA.US) CEO Jensen Huang stated that "extremely useful" quantum computers may still take decades to become a reality, causing stocks related to quantum computing, such as IonQ Inc. (IONQ.US), to plummet in after-hours trading on Tuesday.
Huang said, “If you say that we can create a really useful quantum computer within 15 years, that might be a bit early. If you say 30 years, that might already be too late. If you say 20 years, I think a lot of us will believe it.”
IonQ and Quantum Computing (QUBT.US) fell more than 16% in after-hours trading, while D-Wave Quantum (QBTS.US) and Rigetti Computing (RGTI.US) dropped over 14%. Over the past few months, these companies' stock prices surged as excitement grew about the potential of quantum computing technology. This enthusiasm intensified last month following a breakthrough in quantum computing by Google (GOOGL.US).
As of Tuesday’s market close, Quantum Computing's stock had risen over 1,800% in the past 12 months, reaching $17.49. During the same period, Rigetti rose over 1,500%, D-Wave increased nearly 1,000%, and IonQ gained more than 300%.
Google’s stock posted its best monthly performance since May 2023 last December. The stock fell 0.4% in after-hours trading on Tuesday.
Short Call: The Winning Strategy in High Volatility Markets
In a high-volatility, high-risk market like quantum computing, the Short Call (selling call options) strategy can be an effective trading tool. The core of the Short Call strategy is to sell call options and collect the premium. If the underlying asset’s price is below the strike price at expiration, the trader can realize maximum profit.
Case Study: RGTI’s Short Call Strategy
Let’s assume we choose an RGTI call option with a strike price of $20, expiring on January 10, and a premium of $58. Below are the details of the strategy:
Opening Position: Sell 1 RGTI call option and collect a $58 premium.
Maximum Profit: If RGTI’s stock price is at or below $20 at expiration, the trader doesn’t need to deliver the stock, and simply earns the $58 premium.
Maximum Risk: If RGTI’s stock price significantly exceeds $20 at expiration, the trader will have to deliver the stock at $20, resulting in a loss equal to the difference between the market price and the strike price minus the premium. As the stock price continues to rise, the trader’s loss theoretically becomes unlimited, as there is no upper limit to the asset price.
Strategy Use Case
The Short Call strategy is suitable for situations where the trader expects the underlying asset’s price to remain flat or slightly decrease by expiration. In the case of RGTI’s current high volatility, if a trader believes its rapid price increase is a short-term phenomenon, the Short Call strategy can effectively capture this expectation.
The quantum computing industry holds great potential, but it is also fraught with high risks. By using the Short Call strategy, investors can capitalize on high volatility opportunities while managing risk effectively. Of course, as the seller of the option, one must have a strong judgment of the underlying asset’s movement and practice diligent risk management.
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