Trent Becomes Not-Bearish On Semis

 |  Includes: PSI, SMH, SOXX, XSD
by: William Trent, CFA

After long having a bearish outlook toward semiconductor stocks, I recently started noting more favorable indicators. While I am not quite turning bullish, I am becoming not-bearish. And now I am putting my money squarely in the not-bearish camp by selling naked put options on the SMH at $35.

If the semiconductor ETF falls below $35 (it was just below $36 when I wrote the option) before mid-July I could be forced to buy it for $35. If not, I will pocket a $50 premium (net of commission) for taking the risk. This is in line with my not-bearish position because if I were bullish I would be buying the SMH at current levels or buying call options. I am basically saying that I don’t think it will go below $35 and that at any rate I would be willing to own it for a net $34.50 if need be.

Those of you who were recently criticizing my bearishness can consider this your contrarian signal to get out. Or not.

Disclosure: author has a short position in SMH put options at time of publication.