Semiconductor Stocks Surge as Traders Bet on Sharp Correction

Jakarta, CNBC Indonesia - Semiconductor stocks’ sharp surge has begun to spark concerns among traders. This has led many market participants to bet on a price decline using put options on semiconductor sector ETFs.

Bloomberg data shows open interest in SMH put contracts has surged over the past two months to nearly 1.7 million, the highest since the ETF’s launch in 2011. In comparison, outstanding call contracts stand at just over 500,000.

Implied volatility on SMH has also risen, nearing 55% on Tuesday local time, approaching the highest level in over a year. Zed Francis, Chief Investment Officer at Convexitas, said the situation indicates most put contracts were bought as hedging measures.

“People are hedging against this rally rather than chasing it,” Francis said, quoted by CNBC on Thursday, May 28, 2026.

He believes the current chip stock surge is being met with risk mitigation activity, suggesting the rally may be more sustainable than a typical boom-and-bust cycle.

However, the rise in put contracts does not necessarily reflect bearish sentiment towards the semiconductor sector. The high interest is also influenced by the expensive options trading on individual chip stocks experiencing extreme volatility.

Implied volatility in the semiconductor sector is significantly higher than the S&P 500’s 16%. Some individual semiconductor stocks, such as Micron, have implied volatility as high as 105%.

Don Kaufman, co-founder of TheoTrade, said excessively high volatility has led traders to prefer sector ETFs over individual stocks. He considers this strategy more efficient than buying options on highly volatile stocks.

Kaufman disclosed he has purchased a SMH 535/525 put spread set to expire in late August, describing it as a bet on a significant correction following the semiconductor sector’s sharp rally.

“I’m taking an out-of-the-money position to anticipate a major pullback,” Kaufman said. He believes the semiconductor stock surge may be nearing its end due to high valuations and expensive option premiums in the sector.