Options Activity Picks up in Semiconductor ETFs

The VanEck Vectors Semiconductor ETF (NYSEArca: SMH) is up nearly 21% year-to-date, but the exchange traded fund has traded slightly lower. Traders are betting SMH will quickly rebound.

Semiconductor ETFs have recently been durable performers as semiconductor stocks are rebounding to steady the broader technology sector, but that does not mean the gains are over for this suddenly hot group. However, valuations are rising for chip stocks.

“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,” according to Schaeffer’s Investment Research.

Big-name diversified technology ETFs also feature semiconductor exposure. For instance, the Technology Select Sector SPDR Fund (NYSEArca: XLK) includes companies from technology hardware, storage, and peripherals; software; diversified telecommunication services; communications equipment; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components; and wireless telecommunication services.

SMH “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,” according to Schaeffer’s.