SMH Options Trader Targets Familiar Support

Chip stocks have collectively outperformed the broader Nasdaq Composite over the past year

Aug 23, 2017 at 2:43 PM
facebook X logo linkedin


Chip stocks have put in a strong technical performance in 2017. According to Schaeffer's Senior Quantitative Analyst Rocky White, the 38 names we track under the "semiconductors" umbrella have averaged a 30% year-over-year gain, besting the Nasdaq Composite's (COMP) 20.2% return. Likewise, the VanEck Vectors Semiconductor ETF (SMH) has added 30.6% in the past 12 months. Here's a closer look at the technical support lifting SMH, and how options traders have reacted to the impressive price action.

SMH Options Near Peak Levels

SMH's long-term uptrend has been underlined by its 80-day moving average -- currently located at $85 -- which has served as a springboard for the shares since March 2016. More recently, the exchange-traded fund (ETF) has staged several successful tests of this rising trendline since hitting a record high of $89.72 on June 9, last seen trading at $86.36.

smh daily chart august 23

The fund has been hot with options traders, too, with 543,198 contracts currently open -- in the 87th annual percentile. Breaking it down even further, 382,455 puts and 160,743 calls are currently outstanding. Despite this put-bias, peak open interest of 51,911 contracts is found at the September 90 call. It's not entirely clear how options traders have used these front-month calls, but data from Trade-Alert points to a possible collar with the September 90 puts.

Regardless, SMH call volume was accelerated on Tuesday, with roughly 43,000 contracts changing hands -- eight times what's typically seen, and just shy of the 12-month high of 43,606 contracts traded in a single session on July 19. The activity was mostly centered on the front-month series, where it looks like one trader may have initiated a long call spread with the September 85 and 86 calls, and possibly closed a four-way spread at the September 90 and 95 calls and puts in the process.

If a long call spread was initiated, the options trader paid an initial cash outlay of $490,000 (7,000 contracts per spread * $0.70 net debit paid * 100 shares per contract). This is the most the spread strategist stands to lose, should SMH settle at or below the bought 85 strike at the close on Friday, Sept. 15 -- when the series expires. Profit, meanwhile, will accumulate on a move north of breakeven at $85.70 (bought strike plus net debit), but is capped at $0.30 per spread (difference between the two strikes, less net debit) due to the sold 86 strike.
 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI