Bearish trade on the semiconductors

By
A A A

Semiconductors have had a nice run, but one investor is looking for a pullback.

optionMONSTER's Depth Charge tracking system detected the purchase of 5,700 February 30 puts on the Semiconductors HOLDRS ( SMH ) exchange-traded fund for $0.50. The same number of February 27 puts was sold simultaneously for $0.15. Volume was above open interest in both strikes.

SMH The SMH is up 0.37 percent to $32.64 in morning trading but has been falling since hitting a key resistance level from May 2008 six days ago. The fund, whose holdings include Texas Instruments, Intel, and Applied Materials, has rallied 23 percent in the last three months, more than twice the performance of the broader technology sector.

Today's option strategy, known as a bearish put spread, cost $0.35 to implement and will earn a maximum profit of about 750 percent if SMH closes at or below $27 on expiration. That would mark a return to levels where it traded in late September.

Interestingly, we have recently been seeing strength in software companies such as Oracle, Microsoft, Adobe, and BMC Software. Some investors may be looking to shift money from chipmakers to software companies, which haven't rallied as much.

Overall option volume in SMH is 4 times greater than average so far today, with puts outnumbering calls by 7 to 1.

(Chart courtesy of tradeMONSTER)



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: AMAT , INTC , ORCL , SMH , TXN

optionMONSTER

optionMONSTER

More from optionMONSTER:

Related Videos

Stocks

Referenced

Most Active by Volume

270,887,127
    $93.89 unch
225,243,115
  • $40.93 ▼ 2.74%
135,900,109
  • $47.52 ▲ 1.80%
89,467,924
  • $5.35 ▼ 1.11%
85,105,358
  • $16.95 ▼ 0.53%
80,748,539
  • $39.80 ▼ 4.21%
68,491,586
  • $3.57 ▼ 1.79%
62,097,356
  • $100.96 ▼ 0.82%
As of 9/19/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com