The semiconductor sector has become a battlefield for two opposing forces in the options market. On one side, the crowd has piled into bullish bets on the VanEck Semiconductor ETF (SMH) at levels not seen since April. On the other, a single trader just placed the largest options trade of the day — a $129 million bearish wager that stands out as a glaring contrarian signal.
According to options flow data from Barchart, the ratio of open put to call contracts on SMH dropped to 1.89 on Monday, the most lopsided toward calls since early April. That’s a sharp reversal from a one-year bearish high of 3.5 hit in late June. The ratio has not fallen below 1.5 in at least a year, reflecting how heavily investors have relied on puts as a hedge against long equity positions.
This open-interest ratio has been a surprisingly reliable indicator for SMH’s price action this year. Traders began accumulating puts in late May and early June as momentum slowed, and the ratio peaked on June 24 — just two days before the fund reached its peak and entered a 25% drawdown.
Zed Francis, CIO of Chicago-based Convexitas, which runs a semiconductor options trading strategy, explained that banks and institutions became so exposed to leveraged ETFs and volatile chip names this summer that they felt a strong need to hedge against jump risk. That drove hedging activity and volatility significantly higher. Now, he says, those hedges are no longer needed, and their unwinding has made volatility in the sector inexpensive.
The massive bearish bet
Enter the big-money contrarian. Whether driven by the cheap cost of semiconductor options — SMH’s implied volatility collapsed from 65% last month to 40% on Monday, the lowest since February — or simply the urge to fade the crowd, someone placed a massive bet against the group on Monday.
Just before 11 a.m. ET, a trader on the Nasdaq PHLX exchange bought 20,100 SMH puts with a $630 strike price expiring Nov. 20, paying $129 million, according to data from SpotGamma and ThinkOrSwim. Open interest in that contract was less than 50 at Friday’s close, indicating this was almost certainly a new position. With SMH trading at $594 at the time, the deep in-the-money put position is likely being used as a synthetic short bet against the sector.
The trade was the single largest options transaction on the tape Monday, and it was 3.5 times bigger than the second-largest, a $37 million multi-part trade in Sandisk, according to SpotGamma.
A contrarian view on pricing
Don Kaufman, co-founder of TheoTrade, offers a skeptical take on the current state of semiconductor options pricing. He notes that the further out you go in some of these semiconductor options, the more irrational the pricing becomes, often betting on an upside crash. That mispricing, he says, is exactly what makes him a contrarian.
The tension between crowd sentiment and this outsized bearish bet raises a question that has defined the semiconductor trade all year: Is the crowd right to be bullish now, or is the big-money player seeing something the broader market has missed?
Source: www.cnbc.com — https://www.cnbc.com/2026/08/18/contrarian-vs-the-crowd-one-trader-made-a-massive-bet-against-chip-stocks.html
This article is for informational purposes only and does not constitute financial, investment, tax, or legal advice. Do your own research and consult a licensed professional before making financial decisions.
