Options Traders Pile Into Leveraged Bet Against Chip Stocks

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As chipmakers head for their worst month since the pandemic outbreak, options traders are betting the selloff has further to go.

The bearishness was evident in the Direxion Daily Semiconductors Bear 3x Shares (SOXS), an exchange-traded fund that pays three times the inverse return of the Philadelphia Semiconductor Index. As the benchmark tumbled as much as 3.2% Tuesday, call options on the ETF, which amount to wagers against chip stocks, saw volume exploding to a record 164,000 contracts.

Options Traders Pile Into Leveraged Bet Against Chip Stocks

Whether they’re direct bets or hedges against existing positions, it’s hard to tell. What’s clear is the souring sentiment toward an industry that’s suffering from production constraints. Hedge funds, for instance, have been selling chip stocks all year, cutting their exposure to the lowest level since early 2020, prime broker data compiled by Morgan Stanley show.

“We continue to see investors positioning for further volatility in the sector in the days/weeks ahead,” said Christopher Jacobson, a strategist at Susquehanna International Group. The outsize call volume in the SOXS “has been particularly notable.”

The Philadelphia Semiconductor Index fell about 4% Wednesday, extending its loss for May to 8% -- on course for the biggest monthly decline since March 2020. Meanwhile, SOXS has worked for bears, jumping 26% this week.

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