After a tremendous bounce in equity markets, I want to prepare for additional volatility, specifically in chips. This volatility of volatility forces me to be cautious after any outsized movements, yet I welcome opportunities of more-than-likely additional acute moves this month. I am expressing a bearish view in chip stocks as I expect significant negative price action to persist in the VanEck Semiconductor ETF (SMH) . SMH has had an historic recovery in the last two weeks of trading sessions. SMH had an intraday low of around $220 on last Monday’s massive injection of volatility. Just 10 days later, SMH had an intraday high of $247.34, closing near that high on Thursday. SMH YTD mountain VanEck Semiconductor ETF (SMH), YTD That is a remarkable pop in this high-beta, market-leading ETF. However, I believe now is the time to take SMH profits if your long, or hedge for a slight pullback. After the Cboe Volatility Index soared above 65 at its intraday high last Monday, investors have witnessed an historic crash in volatility, as the VIX dropped roughly 75% with a current reading of 15. During that massive drop in volatility, investors saw Nvidia (NVDA) (a 21% holding in SMH) bounce off of $90 as it has climbed back up to nearly $125. NVDA has to back-n-fill lower in order for my bearish view to work out in the next few weeks. There is risk in this as Nvidia’s second quarter earnings report will be released on Aug. 28. This uncertainty fortifies the fact that I have to define the risk in my view and that is why I want to buy a put spread in SMH. The Trade Bought the SMH $242.50 put (8/30/24 expiry) for $6.25 Sold the SMH $232.50 put (8/30/24 expiry) for $3.00 This put spread costs $3.25 of $325 per one lot spread SMH was trading roughly $245.50 at the time of this trade In the event, markets march higher and NVDA has another gangbusters earnings report, this trade will expire worthless. However, if SMH moves lower, this $10 spread will fill out and an investor will profit $675 from each one lot spread ($10 minus the cost of the spread, $3.25). DISCLOSURES: (Long this spread) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
