Call toll-free 800.328.1267
[showmodule id=”58959″]
Options traders are bracing against a drop in chip makers as earnings season marches on.
Here’s a breakdown a large bearish spread in the Market Vectors Semiconductor ETF (SMH) yesterday:
Owning puts fixes the price where a security can be sold. Selling them generates income and creates an obligation to buy shares if the underlier falls to a certain level. Combining the two into a spread essentially uses money from contract one to cheapen the cost of the other, increasing the leverage from a drop to the lower strike.
In this case they will collect $10 if the ETF closes at $90 or lower on expiration — a potential profit of 635 percent based on their outlay. (See our Knowledge Center.)
SMH ended the session up 1.47 percent to $107.35. It may face downside pressure this morning because its biggest holding, Intel (INTC), fell after the closing bell. Weak sales at its up-and-coming data center division caused the drop.
Some other big names are set to report before the put spread expires. Nvidia (NVDA) is the biggest in mid-August. Broadcom (AVGO), Applied Materials (AMAT) and Broadcom (AVGO) are on the list as well.
The industry has also been hurt by trade worries as President Trump slaps tariffs on China, a major buyer of microchips. Maybe that’s why SMH hasn’t made a new 52-week high since March, while the Nasdaq-100 and SPDR Technology Fund (XLK) both set new records this month.
Overall option volume in SMH was twice the average in the last month on Thursday, with puts outnumbering calls by more than 3 to 1.
Market Vectors Semiconductor ETF (SMH) with profit level on put spread.
Options are an important tool for many retail investors. They can either replace trading shares, or make it easier to position oneself in stocks. Let’s consider the first things options traders need to know. An Option’s Price Is Usually Called ‘Premium’ There are some...
Options are complex instruments that can swing sharply in value. Traders may find the moves confusing, so this article will help explain key "Greeks" -- some of the most important factors impacting the price of options. Greeks are Greek letters used in complicated...
Covered calls are one of the most common strategies for options traders. While many investors have heard of them, they may not realize that covered calls are highly versatile. This article will cover how the method can be bullish, neutral and even bearish. First,...