Tom Sosnoff's Plan to Chip Everyone Isn't Helping SMH
Tom Sosnoff's Plan to Chip Everyone Isn't Helping SMH
By:Tom Preston
Chip-stock weakness hurts SMH
Maybe the market hasn’t heard about Tom Sosnoff’s enthusiasm for putting chips in everyone, because chip stocks are starting to look weak.
After being market leaders for much of the past quarter, the biggest chip stocks have been either falling or flat over the past few days. And that’s carried over into the VanEck Semiconductor ETF (SMH). SMH sold off from an all-time high three weeks ago and has been relatively flat since.
SMH’s biggest holdings like Nvidia (NVDA), Taiwan Semiconductor (TSM), Broadcom (AVGO), ASML Holding (ASML) and Qualcomm (QCOM) have all been weaker. If that continues, SMH could also move lower. That might be enough for a trader to consider a bearish strategy in it.
SMH’s IV has dropped due to the lack of movement in the ETF, its 33% overall implied volatility (IV) and its 53% IV rank are still high enough to make its options good candidates for short premium trades.
But, if you think SMH might continue to drop in the next few weeks, the short-call vertical that’s short the 235 call and long the 240 call in the May weekly expiration with 36 DTE is a bearish strategy. It collects a credit 1/3 the width of its strikes, has a 77% probability of making 50% of its maximum potential profit before expiry, and that generates $0.55 of positive daily theta.
Tom Preston, tastylive chief market strategist, is responsible for the brokerage’s trading strategy, client-facing trading software and futures trading products. He contributes to Luckbox magazine and writes tastylive's Cherry Bomb newsletter. He's been trading options since 1992.
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