ETF Trends
ETF Trends

When we last looked at exchange traded funds indexed to semiconductor stocks in November, bearish put buyers were present in SOXX (iShares PHLX SOX Semiconductor Sector), and the sector has been a laggard against a relatively strong Nasdaq-100 in 2011.

SOXX has lost 13.01% versus the Nasdaq 100 up 2.39% and the S&P 500 losing 2.10%. Since SOXX options do not typically trade in large size, we found the put buying notable at the time and worthy of a highlight.

Now that we are seeing names in the sector report disappointing earnings and the stocks have subsequently dropped in price, such as TXN and INTC, we believe a revisit of the sector is in order. [Intel Warning Hits Nasdaq ETF]

On Monday, SOXX opened up on a “gap down” lower than its 50 day moving average, and yesterday the sector ETF fell an additional 2.4% on heavy trading volume. Top holdings in the fund are INTC, TXN, AMAT, BRCM, and TSM currently. INTC is also the fifth largest holding in the QQQ (PowerShares Nasdaq 100), with a 4.96% weighting.

It will be interesting to see how options traders play the current situation in semiconductors, as volatility related to earnings and deteriorating fundamentals in the sector has clearly emerged. This said, trading opportunities may indeed be present for the nimble, and Direxion offers two triple leveraged products SOXL (Direxion Daily Semiconductor Bull 3X) and SOXS (Direxion Daily Semiconductor Bear 3X).

Both products are geared to the PHLX Semiconductor Index, the same index that SOXX tracks, and are designed to deliver three times the daily long and inverse returns respectively to the index. With a number of semi names still slated to release quarterly earnings in the near term, we would expect to see higher trading activity in these products to continue as investment managers play both the “bull” and “bear” side of the trade with these funds.

Direxion Daily Semiconductor Bear 3X

For more information on Street One ETF research and ETF trade execution/liquidity services, contact pweisbruch@streetonefinancial.com.