Acquisition of Semiconductor Space via SMH: Best Business Opportunities

Whether we blame price hikes, supply chain issues, or the war in Ukraine, the semiconductor space has seen a significant decline this year with SMH down 16% to end the first quarter of trading. The ETF is a basket of 26 stocks including TSM (-11%), NVDA (-11%), ASML (-16%), TXN (-5%), and AMD (-20%) as the top 5 stocks, all of which have seen A big downside to the beginning of the year.

SMH’s volatility remains high at around 40%, much larger than other broad-based ETFs like SPY (23%) or even the more tech-oriented QQQ (28%) and XLK (28%), and higher than the more tech-oriented QQQ (28%), and higher than other broad-based ETFs. The smaller roof is like the XRT (37%). SMH also experienced the biggest downside compared to SPY or QQQ, performing under ~10% and ~5%, respectively. If you are a bullish in the space, or think that selling may be overkill, one might look to sell naked positions in this increased volatility.

Currently, a short put option at 1 standard deviation is trading around 30 days until the expiration mark at a premium of $3.10 at a strike of ~240 ~ 10% of the funds given the current ETF price of 265. Use of about $2,700 buying power per contract To hold the position, this position has the potential to generate a return of approximately 10% on capital over a 30 day maturity period if the ETF stays above the 240 mark, which would only hit the low once since July 2021. If volatility remains high, And this strategy can be implemented month after month as a way to stay long in the low-priced semiconductor space, while taking advantage of the higher premium.

YTD % change in SMH, SPY, QQQ, XRT, and XLK as of 3/23/2022

Source: tastyworks

Written by Nick Batista, host, tastytrade LIVE!

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