Options Traders Bet on Semiconductor Stocks

This blog post was written by OptionMonster's Chris McKhann.

Semiconductor stocks have been trying to break to higher levels — and options traders appear optimistic that they will succeed.

The Semiconductor HOLDRS (SMH) exchange traded fund ran to a high of $18.56 yesterday (Wednesday) before pulling back to close at $17.87, still up on the day. And the ETF is up another 1 percent to $18.05 today.

The chip ETF is roughly 3 points higher than its November low but remains almost 50 percent below the May high above $34. Despite horrendously bad news from the sector, some see this as a valuation trough that may signal the potential for a recovery.

There was considerable options action yesterday, as the total volume of 63,000 contracts was more than double the 20-day average of 26,000, according to OptionMonster's tracking systems. Calls outnumber puts by more than 3 to 1, a ratio that would often be viewed as strictly bullish — but can be skewed by those selling puts or calls as opposed to just buying.

The most interesting trade with a clear direction was the purchase of the March 20 calls, where 9,600 contracts changed hands. This was well above open interest of 5,226. These options, which closed the day at $0.35, will require a 14 percent move higher at expiration to show a profit.

Chip Industry Players:

Micron Technology



Applied Materials


Jon 'DRJ' Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.com.