Put prices turn 5-fold in $SMH

Option traders made huge gains in bearish positions in the VanEck Vectors Semiconductor Fund today.

On Apr. 23, Investitute’s tracking systems showed that 5,000 Weekly $115 puts expiring today were purchased in one print for $0.30 with shares at $118.56. This was clearly a new position, as open interest in the strike was only 628 contracts before that session began.

Those puts traded for $1.58 this morning, better than 5 times their purchase price. The stock fell 4.24% in the same time frame, illustrating the kind of leverage that can be achieved quickly with options.

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 to an intraday low of $113.50 at the open before pulling back higher to close at $115.81 today, still down 1.22% for the session. The exchange-traded fund slipped lower as its components, manufactures of semiconductors, fell with weak fiscal 2019 guidance from Intel (INTC).