tech
Traders are getting worried the chip stock bull market is cracking. How to protect yourself
Options traders were buying a lot of protection on the iShares Semiconductor ETF (SOXX) on Tuesday.
TL;DR
- Options traders are buying significant protection on the iShares Semiconductor ETF (SOXX), with put volumes exceeding average levels.
- The South Korean KOSPI Index, a proxy for the semiconductor supply chain, has experienced multiple sharp drawdowns exceeding 10% this year.
- The semiconductor sector has seen extraordinary returns, but historical rallies, like the one preceding the 2000-2002 tech wreck, were followed by significant downturns.
- Volatility in the semiconductor sector has doubled since the beginning of the year, mirroring patterns seen before past market tops.
- A put spread strategy is proposed as a way to mitigate the cost of protection against severe downdrafts in semiconductor stocks.
- The August 570/450 put spread offers a 3:1 payout for approximately 5% of the underlying's value, providing insurance against sharp declines.