The VanEck Vectors Semiconductor ETF (NYSEArca: SMH), one of the largest semiconductor exchange traded funds, is up 21.7% year-to-date. Perhaps as a result of its 2017 bullishness, SMH is drawing some hedging activity in the options market.
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.
“Put volume on the VanEck Vectors Semiconductors ETF (SMH) finished at two times the expected rate yesterday, thanks to heavy action at the November 69 put. Trade-Alert data suggests a trader bought to open 34,250 contracts here for 69 cents each, meaning he or she spent almost $2.4 million on the wager (premium paid * number of contracts purchased * 100 shares per contract),” reports Schaeffer’s Investment Research.
SMH, which turns six years old later this year, tracks the MVIS US Listed Semiconductor 25 Index and is home to 26 stocks. Taiwan Semiconductor (NYSE:TSM) and Intel Corp. (NASDAQ: INTC) combine for over 23% of SMH’s roster. Other familiar names in the ETF include Qualcomm Inc. (NASDAQ: QCOM), Nvidia Corp. (NASDAQ: NVDA) and Texas Instruments Inc. (NASDAQ: TXN).
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SMH’s top 10 holdings combine for 64.5% of the ETF’s weight.
“But skepticism is creeping in from other regions of the Street, as well. Short interest in the semiconductor ETF rose by almost 29% during the last reporting period. Going back even further, short interest is up almost 62% since mid-February,” according to Schaeffer’s.
Investors have allocated $146.2 million to SMH this year.
Traders looking to make bearish bets on chip ETFs can consider the ProShares UltraShort Semiconductors (NYSEArca: SSG), which 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), which provides a -3x or -300% performance of the PHLX Semiconductor Select Index.
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