SMH Analysis

VanEck Vectors Semiconductor ETF (SMH)

Update 3/21/2020: My short iron condor position on SMH unwound in several steps. The short puts were assigned on March 13, and in return long shares were placed in my account. I continued to hold the calls until they expired after the closing bell on Friday, March 20.

I entered the position in early February, before the crash. SMH rose to a peak on February 14, traded in a range for three days and then began a swift and relentless fall. The implied volatility rank was 73.0% at the exit, up 31.4 percentage points from the entry level.

In calculating the results I’ll do the options and the shares separately, and the calculated a combined result.

Overall, the options produced a $14.20 credit per contract/share, which added to the $1.27 credit at entry resulted in a $15.47 credit. The shares underlying the options opened exit day at $107.15 per share, down $39.90 from the entry level.

Those shares declined by 27.1% over 36 days for a -393% annual rate. The options position produced a 1108.1% return for a +11235% annual rate.

The long shares of SMH were placed in my account after assignment for a $137.00 debit per share, and I sold them for a $116.5 credit, a loss of $20.42 per share, or $14.9%, a -5,440% annual rate.

The total return, options and shares, was a loss of $4.95 per share.

I have entered a short iron condor spread on SMH, using options that trade for the last time 43 days hence, on March 20. The premium is a $1.27 credit and the stock at the time of entry was priced at $147.00

The profit zone for this position is between $157.27 on the upside and $133.27 on the downside.

The implied volatility rank (IVR) stands at 31.4.

Premium: $1.27 Expire OTM
SMH-iron condor Strike Odds Delta
Long 159.00 88.0% 13
Break-even 157.27 84.0% 17
Short 156.00 80.0% 21
Short 137.00 77.0% 21
Break-even 133.27 81.5% 17
Long 132.00 86.0% 13

The premium is 31.8% of the width of the position’s wings.

The profit zone covers a 7.0% move to the upside and a 10.3% move to the downside of the entry price, for total coverage of 17.3%

The risk/reward ratio is 2.1:1, with maximum risk of $273 and maximum reward of $127 per contract.

By Tim Bovee, Portland, Oregon, February 6, 2020


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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