Traders see more pain for this beaten sector

Options Action: More pain ahead for chips?
Options Action: More pain ahead for chips?   

Chip stocks are getting crushed

The semiconductor exchange-traded fund, iShares PHLX Semiconductor, trading under the ticker symbol SOXX, has fallen nearly 9 percent in the past 30 trading sessions while the broader Nasdaq Composite is down 1.3 percent in the same period. And some traders are betting on even more pain for one of the ETF's biggest holdings: Texas Instruments.

On Wednesday, when put volume ran two times its daily average, traders made a series of bearish bets that the stock would fall three percent by the end of the month. Puts are options that allow holders to sell shares of a company at a certain price and at a designated time.

Specifically, there were large opening buyers of the July 31 weekly 52.50-price target, or strike, puts paying an average of $2.08 each. Since buying a put is a bearish bet, these bets become profitable if Texas Instruments fall below $50.42 by July 31.

"These traders might be looking at the July 31 weekly puts because Texas Instruments is due to report on July 22," options expert and CNBC contributor Mike Khouw said Wednesday on CNBC's "Fast Money."

But it's the nature of the bets that lead Khouw to believe these traders think the stock could be in for a steeper pullback.

"People don't buy options just to break even so i think whoever is buying these puts actually thinks the downside for this semi is potentially more than 4 percent," he said.

Texas Instruments is expected to report its fiscal second quarter 2015 earnings on July 22 after the bell.

SOXX was up about 0.7 percent in morning trading.

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