Options Bears Blast Sinking Semiconductor ETF

SMH options traders are betting on even bigger losses by Friday's close

Jun 25, 2018 at 2:41 PM
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The tech sector is feeling the brunt of the latest trade worries weighing on Wall Street, with the Nasdaq on track for its worst daily loss since April 2. Chip stocks are getting hit especially hard, and the VanEck Vectors Semiconductor ETF (SMH) is down 3.4% at $102.98. Options bears are targeting even bigger losses, too, with puts trading at a quick clip today.

At last check, around 100,000 puts and 40,000 calls have changed hands on SMH -- three times what's typically seen at this point in the day, and volume pacing in the 98th annual percentile. Seeing notable attention is the weekly 6/29 95-strike put, where it looks like new positions are being purchased for a volume-weighted average price of $0.16, making breakeven at this Friday's close $94.84 (strike less premium paid).

Today's activity reflects the put-skewed bias seen among short-term options traders, as evidenced by SMH's top-heavy gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 2.76. In other words, near-the-money puts more than double calls among options set to expire in three months or less.

Drilling down, the August 90 and 100 puts saw the biggest increase in open interest over the past 10 days, and it looks like these back-month options were possibly used to initiate a long put spread back on Friday, June 15. If this was the case, the trader expects the exchange-traded fund to keep falling through August options expiration, but lowered their risk -- and set a floor -- by selling the 90-strike put.

Looking at the charts, SMH shares have not closed below $90 since last September. The shares have been choppy in 2018, and are up 5.8% year-to-date. Nevertheless, the fund's 200-day moving average has emerged as support -- containing an early May pullback, and containing today's sell-off. Plus, this trendline is currently located near $102.20, which is in the vicinity of a 38.2% Fibonacci retracement of SMH's March through April decline.

smh etf daily price chart on june 25 


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