Recent data shows that open interest in put contracts on the VanEck Semiconductor ETF (SMH) has reached nearly 1.7 million, the highest since the fund's inception in 2011, while call contracts stand at just over 500,000. This significant imbalance suggests that traders are hedging against potential declines rather than speculating on further gains.
Implied volatility for the SMH has also risen to around 55%, indicating heightened uncertainty in the market. Zed Francis, chief investment officer at Convexitas, noted that the current trading behavior reflects a more sustainable approach to the recent price increases, as traders are opting for hedging strategies instead of chasing the rally.
Additionally, the high implied volatility in individual semiconductor stocks, such as Micron at 105%, has made trading in the sector ETF more appealing for some traders.
Don Kaufman, co-founder of TheoTrade, highlighted that the extreme volatility in single stocks has prompted him to take positions in the SMH, suggesting that the current market dynamics may lead to a pullback in semiconductor stocks soon