On Tuesday, options trading for the iShares Semiconductor ETF (SOXX) surged, with put contracts trading at 1.5 times the 20-day average volume, totaling 74,468 contracts.
This uptick in protective trading reflects a broader apprehension about the semiconductor market, particularly as the South Korean KOSPI Index, a key indicator of the global hardware and memory supply chain, has experienced multiple significant drawdowns this year, including a nearly 20% drop.
Despite a remarkable recovery of over 300% from the 2025 lows to recent highs, analysts caution that the current rally may be unsustainable. Historical parallels are drawn to the tech bubble of 2000-2002, where volatility increased alongside rising prices, suggesting that the semiconductor sector could face a sharp downturn if current trends continue.
To mitigate potential losses, traders are considering put spreads, such as the August 570/450 put spread, which offers a cost-effective way to hedge against significant declines while still providing meaningful insurance. This strategy is not a prediction of a crash but rather a precautionary measure to avoid being adversely affected by sudden market shifts