Semiconductor HOLDRs ETF Should Make A Year-End Run

| About: VanEck Vectors (SMH)

For this article, I'd like take a look at a semiconductor exchange-traded fund that looks poised for a breakout soon.

Semiconductor HOLDRs (NYSEARCA:SMH) Fund Overview

Category: Technology
Fund Family: Merrill Lynch
Net Assets: 537.63M
Yield: N/A
Fund Inception Date: May 4, 2000
Legal Type: Exchange-Traded Fund

The earnings report released by Intel (NASDAQ:INTC) last week bodes well for SMH looking forward, as it is the fund's top holding at over 20%. If you are bullish on Intel and the other semiconductor stocks SMH holds, then it's a nice way to play these. This ETF tends to move more than an individual stock would on its own.

I also like that the fund holds both Texas Instruments (NYSE:TXN) and Applied Materials (NASDAQ:AMAT). Applied Materials, Inc. is trading on the lower end of its 52-week range. There is a lot of upside that SMH should benefit from.

Currently, SMH is trading at $30.65 (at Friday's close). The fund is down 11.5% for the year. However, this is exactly when I want to get into the position.

52-week high: 36.99
52-week low: 25.92
P/E: N/A
Dividend Rate: 0.544995
Yield: 1.7781
Market Cap: 554.46 M
Volume: 11.17 M

Here are some of the fund's top holdings:

Intel Corporation 21.98%
Texas Instruments Inc 19.75%
Applied Materials Inc 9.42%
Altera Corp 7.31%
Analog Devices Inc 6.66%
National Semiconductor Co 5.01%
Xilinx Inc 4.88%
Linear Technology Corpora 4.88%
KLA-Tencor Corp 3.82%

Another reason I like to trade SMH is that there is sufficient liquidity in regards to call options. With many of these type of ETF's, the volume is so low that the spread between the bid/ask price is too far apart for my liking. I won't even bother with those ETFs.

Historically, late October and November is a time when chip stocks tend to do well. SMH follows this trend as well, and should see a nice run-up in price heading into December 2011 and the beginning of 2012.

This is not an ETF to hold on to for an extended period. I would recommend that if you buy call options on it, that you only hold it until February 2012. If you do see a nice return in a relatively short time period, it's always a good move to take your profits. I am expecting around a 20% increase from its current price.

I tend to be very aggressive in this trade. In my past trades, I have purchased between 200-300 call options that are $2.50 out-of-the-money with a February 2012 expiration date.

Disclosure: I am long SMH. I own February 2012 $32.50 strike call options.