Trader bets $129 million against semiconductor ETF in record options trade

A trader spent $129 million on semiconductor ETF puts Monday, the session's largest options trade and a contrarian bet against the chip sector.

"The further out you go in some of these semiconductor options, the dumber the options pricing gets betting on an upside crash," said Don Kaufman, co-founder of TheoTrade. "That unto itself makes me a contrarian."

The position consisted of 20,100 put contracts with a 630 strike expiring Nov. 20, purchased at $64.35 per contract on the Nasdaq PHLX exchange just before 11 a.m. ET. Open interest in that contract was less than 50 at Friday's close, meaning the trade was almost certainly a new position. It was 3.5 times larger than the second-biggest options transaction of the session, a $37 million leg in Sandisk, according to SpotGamma data.

For the bet to turn profitable, SMH must fall below roughly $565.65 by expiration — about 5 percent below Monday's trading level near $595. Every dollar below that threshold translates into roughly $2.01 million in gains across the 20,100-contract position.

The trade stands in sharp contrast to the broader options market's stance on the semiconductor sector. The put-to-call ratio on SMH slid to 1.89 Monday, the most lopsided toward calls since early April and down from a high of 3.5 in late June, according to Barchart data. The ratio hasn't fallen below 1.5 in at least a year, reflecting persistent demand for puts as hedges against long equity positions.

That ratio has tracked SMH's price action closely this year. Traders accumulated puts in late May and early June as momentum slowed, pushing the ratio to a one-year bearish high on June 24 — two days before the fund peaked and entered a 25 percent drawdown.

Hedging costs collapse as volatility unwinds

The cost of hedging has also fallen sharply. SMH implied volatility dropped from 65 percent last month to 40 percent Monday, the lowest since February. That decline reflects the unwinding of hedges that banks and institutions built up during the summer's volatility spike.

"Bank exposure to leveraged ETF and Situational Awareness this summer got to the point they felt very exposed to jump risk in semiconductor names and that caused hedging and volatility to go way up," said Zed Francis, CIO of Chicago-based Convexitas, which runs a semiconductor options trading strategy for clients. "Now they don't need those hedges, and I believe unwinding of those hedges has made volatility in the sector inexpensive."

What the $129 million bet means for chip stocks

The put purchase could be a hedge against a large long semiconductor portfolio, or it could be a directional bet from a trader who sees further downside. SMH's 52-week range stretches from about $281 to $672, and the fund has already pulled back meaningfully from its highs. The chip sector experienced a drawdown exceeding 10 percent earlier in 2026.

The Nov. 20 expiration gives the trade roughly three months to play out, a window that covers earnings season for most major semiconductor companies. When a trade this size hits the tape, dealers who sold those puts typically sell the underlying ETF or its component stocks to manage exposure, which can create additional downward pressure as the position is hedged.

SMH tracks the MVIS US Listed Semiconductor 25 Index, giving it concentrated exposure to the biggest names in the chip industry. With shares outstanding exceeding 122 million, it is one of the most liquid sector ETFs in the market, making it a preferred vehicle for expressing large directional views.

This article is for informational purposes only and does not constitute investment advice.