Options Sir breaks down the hotspot | Volatility in the memory market intensifies. Which stage has the current market reached, and how to protect profits in hand?

Recently, fluctuations in the memory market have intensified. Supply disruptions potentially caused by a Samsung Electronics strike have further amplified market concerns over memory shortages. On the other hand, adjustments in the South Korean stock market, along with ongoing geopolitical risks, constitute potential risk factors.

As the rally heats up, investors are more likely to be caught between two emotions: worrying about missing out and wanting to continue following the AI-driven revaluation of storage, while also fearing that excessive gains might quickly erase profits during a pullback.

Which phase has the current memory market reached, and what should we look for next?For investors who already hold positions in the memory supply chain, how can they protect the profits already gained while retaining upside flexibility?

What does the Samsung strike mean for the market? In the short term, it reinforces tight supply conditions; in the medium term, it tests Samsung’s delivery reliability.

After wage negotiations between Samsung Electronics and its union broke down, the union plans to go on an 18-day strike starting May 21. South Korea’s finance minister also noted that this event could pose significant risks to South Korea’s economy, exports, and financial markets. Given the already tight supply-demand environment for DRAM, NAND, and HBM, the market naturally interprets this as an additional supply disruption.

In the short term, this is relatively bullish for the storage sector. Jefferies estimates that if the strike occurs, it could impact approximately 3% of global memory chip production.Micron,$SanDisk (SNDK.US)$and SK Hynix benefit indirectly, with the market trading on 'rising uncertainty in Samsung’s supply, allowing competitors to gain pricing and order premiums.'

For Samsung itself, this matter is more like a double-edged sword.The direct impact of the strike on Samsung's revenue may be controllable; price increases in standard DRAM and NAND could help cushion some profit pressures, and the strike might even act as a positive catalyst for contract price negotiations in the second and third quarters.

However, the most crucial variable for Samsung at present is its HBM catch-up, high-end customer certification, and server storage delivery stability.SK Hynix represents a 'leader’s premium,' while Samsung is more akin to a 'catch-up elasticity of a laggard.' By 2025, Samsung’s market share in HBM is expected to reach 20%. If Samsung continues to make progress in HBM certification, capacity delivery, and customer adoption, the market may reassess its valuation. UBS Group expects that Samsung's further growth potential will be the main variable in the market, with Samsung and SK Hynix reaching parity in HBM market share by 2027, each accounting for 40%.

However, if the strike affects customer trust, orders may shift further towards SK Hynix and Micron, increasing the risk of order flow to competitors.A research report by Jay Kwon’s team at JPMorgan points out that uncertainties related to the strike may suppress stock performance in the short term, and it cannot be ruled out that Samsung might underperform its memory peers. However, they believe the logic of buying on dips still holds.

The rally isn't over yet; prices are still building confidence.

According to UBS Group's latest survey in May, there has been no major loosening in memory prices.UBS Group expects that DDR memory contract prices will increase nearly 60% quarter-over-quarter in Q2 2026, up from the previous forecast of 37%, with a further 10% rise possible in Q3. For NAND Flash, UBS predicts contract prices will rise about 60% quarter-over-quarter in Q2 2026, revised up from the earlier forecast of 40%, with another 10% increase expected in Q3.

HSBC’s assessment is similar. HSBC believes that server DRAM prices are stronger than expected, and regular server demand is also driving mobile DRAM price increases; they have also raised their price trajectory forecasts for server DRAM, PC DRAM, and NAND wafers.

Future trends: Focus on confirmation signals

This storage market cycle can be roughly divided into three phases.

The first phase is price rebound. DRAM and NAND recover from the cyclical bottom, with the market trading on inventory digestion and price recovery, while valuations are still assessed as traditional cyclical stocks.

The second phase is earnings upgrades. Prices for server DDR5, HBM, and enterprise SSDs continue to exceed expectations, prompting major firms to raise their earnings forecasts for 2026-2027.

The third phase is valuation re-rating. If long-term supply agreements, AI server demand, and HBM capacity scarcity continue to materialize, the market will reconsider how much valuation should be assigned to leading storage companies. Historically, storage stocks have been suppressed at low P/E ratios due to volatile profits; once revenue visibility is extended by long-term agreements and customer pre-orders, there is room for a higher valuation center.

Currently, it seems more like the 'middle-to-late second phase,' where prices and earnings are still being revised upwards, and valuation re-rating is underway.The current storage market trend has not yet reached a point where its main narrative has been disrupted.DDR and NAND contract prices are still rising, demand for HBM remains strong, and CSP capital expenditures continue to support AI server expansion. HSBC reports also mentioned that capital spending by the four major US CSPs is still rising, providing underlying support for demand in server DRAM, HBM, and enterprise SSDs.However, with share prices having risen to this stage, each subsequent upward move will require new fundamental confirmations.

First,Prices for server DRAM and HBM continue to rise.

If contract prices for server DDR5, HBM, and enterprise SSDs continue to rise, the market will still have support. A weakening in spot prices for standard PC DRAM or consumer-grade NAND does not necessarily indicate a major peak. What truly needs attention is when high-end contract prices start to stagnate, especially if prices for server DRAM, HBM ASP, and enterprise SSDs slow down simultaneously.

Second,CSP capital expenditures continue to support demand.

Capital expenditures by the four major CSPs are expected to rise to $640 billion by 2026, representing a year-on-year increase of about 70%, higher than previous expectations. This is the most crucial demand-side support for the memory market, as the expansion of AI data center investments directly drives demand for HBM, server DRAM, and enterprise SSDs.

Third,LTA/Long-term procurement agreements will determine valuation levels.

If CSPs and enterprise customers continue to lock in capacity through long-term agreements, the market will be more willing to assign higher valuations to memory companies. This is because profit visibility extends from a quarterly basis to a longer cycle. While this change won't eliminate cycles, it will raise the valuation baseline.

Fourth,Monitor inventory levels.

When high prices begin to erode demand and customer inventories start to rebuild. If module manufacturers, channels, and enterprise customer inventories rise in tandem while contract price increases narrow, vigilance is required.

Options strategy: How to use options to protect your profits?

Take $Micron Technology (MU.US)$ The moving average system shows a clear upward bullish arrangement, confirming the medium-term uptrend; several commonly used overbought/oversold indicators have entered extreme zones, signaling short-term risks; meanwhile, the options market reflects strong bullish sentiment and extremely high volatility, with current IV at 103.51% and historical volatility (HV) at 78.20%. Call option volumes consistently exceed Put option volumes, and a lower Put/Call Ratio is typically considered a sign of overall market optimism, pointing to the possibility of future share price fluctuations under high volatility. Investors should be wary of risks associated with high-level volatility.

1. If you already hold Micron shares but are concerned about a pullback from highs: Buy protective put options.

For investors who already hold Micron shares and have seen significant unrealized gains, if they are concerned about a pullback from highs, they may consider directly purchasing protective Puts to add downside insurance to their holdings, guarding against a rapid decline from peak prices.

The logic of this strategy is not to short Micron, but to acknowledge that the current main storage sector remains strong, though the stock price has already risen significantly in the short term and market sentiment is also leaning towards overheating. If expectations for storage prices cool down or risk appetite in the US stock market declines, high-beta leaders like Micron are likely to experience a substantial technical pullback.

The advantage of a protective Put is that investors still retain the upside potential of the underlying stock. If Micron continues to rise, the gains from the stock can offset part of the cost of the Put; if Micron suddenly drops sharply, the value of the Put increases and can hedge some of the losses from the stock.

However, it should be noted that the implied volatility of Micron's options is not low at present, so the direct cost of buying a protective Put will be relatively expensive. Therefore, protective Puts are more suitable for two types of clients: those who have accumulated significant profits and are willing to spend part of their earnings on insurance, and those who do not want to sell their stocks in the short term but are concerned about a sharp pullback affecting their account value.

(The design images displayed on the screen are for illustrative purposes only and do not constitute any investment advice or guarantee; market conditions change frequently, the figure below shows the simulated profit and loss of this strategy on the expiration date, and the illustrated prices do not represent real-world scenarios.)

2. If you wish to reduce the cost of protection, you can further upgrade the protective Put to a Collar strategy.

This strategy is suitable for investors who already hold Micron shares with a lower cost basis, especially those who have accumulated significant unrealized gains, are worried about a sharp pullback but do not want to spend too much on insurance. By holding the underlying stock, purchasing a nearby Put while selling a Call, they sacrifice some upside potential to subsidize the cost of protection. For ordinary investors, this approach is more cost-effective than simply buying a naked Put and is more suited to the current high-volatility environment.

Buying a Put below protects against a sudden reversal in storage-related trading activity and a rapid pullback in stock price from elevated levels; selling a Call above uses some of the future upside potential to lower the cost of protection. Care should be taken not to sell Calls too close to the current price as it may prematurely lock in profits during a strong upward trend.

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