Stocks quoted in this article:
The Merrill Lynch Semiconductors HOLDRS ETF (NYSEARCA:SMH - 31.84) is seeing a wave of bullish activity among options players (relatively speaking). Almost 1,800 call contracts have traded in the name today, compared to the usual daily call volume of around 250 contracts.
The most-popular option is the October 32-strike call, which has seen 1,100 contracts on open interest of just 101. About 85% of the contracts trading have changed hands at the ask price, suggesting these are being bought to open.
With the security up roughly 2% today, these calls are very near-the-money with 22 calendar days until expiration. Breakeven at the time of expiration is $32.45, or the strike price plus the average premium paid ($0.45 per contract). Above this level, gains are theoretically unlimited for the life of the option. South of the 32 strike, losses are capped at 100% of the debit paid.
The SMH contains 25 weighted components, but 34% of the fund is represented by Intel Corporation (NASDAQ:INTC) and Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) (NYSE:TSM). INTC is slated to report earnings on October 16, mere days ahead of October options expiration.
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