Semiconductor stocks and the related ETFs were drubbed to start this week amid fears of escalating trade tensions between the U.S. and China. That was all the motivation some bearish options traders needed to target the VanEck Vectors Semiconductor ETF (NYSEArca: SMH).
President Donald Trump has pushed for restrictions on trade barriers with China, which might pose a threat to the sector. China is a key market for the global semiconductor industry, consuming more than $100 billion worth of semiconductors or roughly one-third of the world population.
Before Monday’s trading day was finished “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,” according to Schaeffer’s Investment Research.
SMH recently dipped below its 50-day average and resides less than 2% above its 200-day line.
Looking At Semiconductors
The $1.2 billion SMH tracks the MVIS US Listed Semiconductor 25 Index. The ETF holds 26 stocks, including Intel Corp. (NASDAQ: INTC), Micron Technology (NASDAQ: MU) and NVIDIA Corp. (NASDAQ: NVDA).
President Donald Trump’s latest threat was to impose an additional round of tariffs on $200 billion worth of Chinese goods. Prior to that, the Trump administration imposed a 25 percent tariff on over $50 billion worth of Chinese goods with the Chinese Commerce Ministry responding with a 25 percent tariff of their own on $34 billion worth of U.S. goods.
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Diving deeper into the recent options activity on SMH, “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,” according to Schaeffer’s.
SMH currently resides around the $103-$104 area and has not closed below $90 in almost 10 months.
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