Rally in chip stocks becomes the most hated in history. Here's the data

• Implied volatility in SMH has risen to near 55%, approaching the highest level in over a year, indicating puts are being actively bought rather than sold
• Individual chip stocks show even more extreme volatility levels, with Micron's implied volatility reaching 105%, making sector ETF options more attractive for some traders
• The put-heavy positioning may reflect hedging activity rather than outright bearish speculation, potentially making the rally more sustainable than a typical 'boom and bust' cycle

Summary: Rally in Chip Stocks Becomes Most Hated in History

Despite a strong rally in semiconductor stocks, traders are aggressively betting against the sector through unprecedented put option activity. Open interest in put contracts on the VanEck Semiconductor ETF (SMH) has surged to nearly 1.7 million contracts over the past two months—the highest level since the fund's 2011 launch. In contrast, outstanding call contracts total just over 500,000.

Key Market Data:

• SMH implied volatility nearing 55% as of Tuesday, near year-long highs
• Individual chip stocks showing even higher volatility, with Micron reaching 105% implied volatility
• S&P 500 implied volatility comparatively low at 16%

Market Implications:

Analysts suggest the heavy put buying may reflect hedging activity rather than outright bearish bets. Zed Francis, CIO at Convexitas, noted that "people are hedging the move rather than leaning to it," indicating the rally could be "more sustainable than a boom and bust."

The extreme volatility in individual chip stocks has made sector ETF options more attractive for certain strategies. Traders like Don Kaufman are using SMH put spreads as less expensive alternatives to trading single-stock options, where implied volatility has reached "jaw-dropping" levels.

Kaufman executed a 535/525-strike put spread in SMH expiring late August, targeting an eventual pullback with a "30-delta spread." The elevated options activity suggests institutional investors are positioning for potential downside while the sector continues its extraordinary run, though the hedging nature of trades may support continued momentum.