The VanEck Vectors Semiconductor Fund dropped with the rest of the technology sector today, resulting in substantial gains for downside option positions.
Last Wednesday, Investitute’s proprietary programs showed that 24,400 Weekly $102.50 puts expiring this Friday were purchased for $0.30 and $0.35 with shares at $104.97. These were clearly new positions, as open interest in the strike was a mere 20 contracts before the activity appeared.
Those calls traded for $0.75 today, more than doubling in value. The stock fell just 2.6 percent in the same time frame, underscoring how 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 fell 4.24 percent to $99.63 today. Chip makers pulled back along with many other technology names as money rotated out of the sector after huge rallies.