Are Investors Betting on Semiconductor ETF Rally?
The semiconductor industry was a drag on the broader technology sector and the related exchange traded funds earlier this year, but that trend is reversing, lifting ETFs such as the VanEck Vectors Semiconductor ETF (SMH) .
Earlier this month, semiconductor stocks and ETFs surged after Applied Materials, the world’s largest supplier of tools used to make semiconductor chips, said it earned $0.34 per share on revenue of $2.45 billion, beating The Street by $0.02 per share and expectations of $2.43 billion in revenue, the Wall Street Pit reports.
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The improving sentiment may foreshadow strength ahead for the overall chip industry as Applied Materials is considered an industry bellwether and the company’s results are viewed as an indicator of health for the industry.
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The semiconductor industry, though, faces some headwinds. Research firm Gartner anticipates that worldwide shipments of personal computers, tablets and smartphones rose only modestly last year, which could cause chip sales to decline.
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Semiconductor weakness comes as investors have been departing technology stocks and exchange traded funds to start 2016. Slumping shares of Apple (AAPL) have been a drag on ETFs such as the Technology Select Sector SPDR (XLK) .
However, some traders are bullish on the near-term outlook for chip stocks and ETFs, SMH in particular.
On Wednesday, “someone bet nearly $1 million on a 7 percent surge in Applied Materials in the next 50 days. In the specific wager, the trader bought more than 25,000 of the July 25 calls for 31 cents each. Since each option accounts for 100 shares of stock, this is a $775,000 bet that Applied Materials will surge above $25.30 by July,” reports CNBC.
ETF investors who are wary of continued weakness in the semiconductor space can turn to inverse or short semiconductor ETF options to hedge against a dip.
For instance, the ProShares UltraShort Semiconductors (NYSEArca: SSG ) 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 ) provides a -3x or -300% performance of the PHLX Semiconductor Select Index.
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VanEck Vectors Semiconductor ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
