Bears triple their money in $SMH

The VanEck Vectors Semiconductor Fund has fallen with major chip makers, resulting in big gains for downside option positions.

On March 27, Investitute’s proprietary programs flagged the purchase of 10,000 April $102 puts for $1.36 to $1.39 as part of a bearish roll with shares at $107.45. This was clearly a new position, as volume was well above the strike’s open interest of 4,478 contracts.

Those puts traded for $4.38 today more than 3 times their original purchase price. The stock fell 7.2% in the same time frame, showing how quickly options can far outperform moves in their underlying shares.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

SMH was down 3.66% to $100.46 today.