Technology and semiconductor stocks fell off Tuesday, and some traders are betting on even more losses ahead. Exchange traded fund traders can also hedge against further weakness with inverse options.
The iShares PHLX Semiconductor ETF (NasdaqGM: SOXX), which tracks the cap-weighted PHLX SOX Semiconductor Sector Index, fell 1.9% Tuesday while the Market Vectors Semiconductor ETF (NYSEArca: SMH) dropped 1.6%. SOXX and SMH has been bouncing around its 200-day simple moving average for the past two weeks.
One trader anticipated that the semiconductor ETF may not be able to maintain its upward momentum, buying 10,000 shares of December 54/50 put spreads for $1 each on SMH – a $1 million contract that SMH could fall as low as $50 by its December expiration, reports Stephanie Yang for CNBC.
SMH was trading slightly under $54 at the close Tuesday.
“This is a bet that we could retrace these lows here in just 39 days,” Mike Khouw, a strategist and business news contributor, told CNBC.
Among the worst performing semiconductor components, Skyworks Solution (NasdaqGS: SWKS) retreated 5.3% and Avago Technologies (NasdaqGS: AVGO) declined 5.3% Tuesday. The two chipmakers weakened after Credit Suisse said Apple (NasdaqGS: AAPL) was cutting iPhone production.
SWKS makes up 3.6% of SOXX and 3.1% of SMH. AVGO is 7.3% of SOXX and 4.1% of SMH.
ETF investors who are wary of continued weakness in the semiconductor space can turn to inverse or short semiconductor ETF options to hedge against a dip. For instance, the ProShares UltraShort Semiconductors (NYSEArca: SSG) takes the -2x or -200% daily performance of the Dow Jones U.S. Semiconductors Index and the Direxion Daily Semiconductors Bear 3x Shares (NYSEArca: SOXS) provides a -3x or -300% performance of the PHLX Semiconductor Select Index. On Tuesday, SSG rose 3.1% and SOXS increased 5.5%.
iShares PHLX Semiconductor ETF
For more information on the semiconductor industry, visit our semiconductors category.
Max Chen contributed to this article.