SMH Analysis

VanEck Vectors Semiconductor ETF (SMH)

Update 7/1/2019President Trump over the weekend said positive things about the China trade dispute, and then added that he’d allow the Chinese semiconductor Huawei to resume trading with U.S. companies. The fund’s price gapped upward to a level that under my rules triggered an exit for a $2.52 debit, a $1.34 loss from the entry credit, with shares trading at $113.84, up $12.30 for the entry price. The implied volatility rank fell by 17.7 points to 29.3%.

My SMH options had 18 days to go before expiring. Under my 2019 trading rules, any price move beyond the zone of profit — the area between the short strikes adjusted for the credit received — triggers an immediate exit if there are fewer than 21 days left in the lifespan of the options.

SMH trended upward throughout my holding period, with one pullback to make it interesting. It was only on the day I exited, after the upward gap, that the price moved beyond the profit zone.

Shares rose by 12.1% over 27 days, or a +164% annual rate. The options position produced a 53.2% loss for a -719% annual rate.

I have entered a short iron condor spread on SMH, using options that trade for the last time 45 days hence, on July 19. The premium is a $1.18 credit and the stock at the time of entry was priced at $101.54.

The profit zone for this position is between $112 on the upside and $91 on the downside.

The implied volatility rank (IVR) stands at 47.0%.

Premium: $1.18 Expire OTM
SMH-iron condor Strike Odds Delta
Long 117.00 95.0% 6
Break-even 113.18 91.0% 10.5
Short 112.00 87.0% 15
Short 91.00 82.0% 16
Break-even 85.18 87.5% 11
Long 84.00 93.0% 6

The premium is 19.7% of the width of the position’s wings.

The risk/reward ratio is 4.1:1.

By Tim Bovee, Portland, Oregon, June 4, 2019


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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