$SOXS bulls, $SOXL bears, collect their chips

Chip bears are seeing their bets be rewarded quickly today in upside call positions on the Direxion Daily Semiconductor Bear 3X Shares Fund (SOXS) and downside put positions on the Direxion Daily Semiconductor Bull 3X Shares Fund (SOXL).

Market Rebellion’s Unusual Option Activity Service flagged unusual option activity in the semiconductor sector yesterday:

–In SOXL, 6,500 May $30 puts were purchased for $0.70 to $0.75 above open interest of 2,034 contracts with shares at $35.75.
–In SOXS, 13,500 May $12 calls were bought for $0.23 to $0.25 above open interest of 319 contracts with shares at $9.79.

Those puts and calls have each traded for as much as $1.70 and $0.50 today, double their respective purchase prices. The funds declined 10.24% and rose 10.11% in the same time periods, underscoring how options can far outperform 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.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

SOXS was last up 5.58% today at $10.40, while SOXL was last lower by 5.7% at $33.58. The exchange-traded funds offer 3x daily leverage to the PHLX Semiconductor Index,