Bearish Options Trades in Micron and Nvidia Raise Questions for Chips

By midday, more than 180,000 puts had traded in the SMH semiconductor exchange-traded fund, compared with 50,000 calls, according to ThinkOrSwim and SpotGamma data. Premium tied to puts totaled $46 million, versus $26 million for calls. By volume, 129,000 put contracts appeared to have been bought, SpotGamma said. Barchart data showed the ratio of open interest in put contracts to calls climbed to 1.95, the highest since the second week of August. The same ratio for the Invesco QQQ Trust rose to 1.51.

In Nvidia, just after the opening bell, someone bought 100,000 180-strike puts expiring Jan. 15 for $21 million, the biggest trade in the stock's options that day. If the position is speculative, it needs Nvidia to fall 22% by expiration to pay off.

The Micron trades were arguably the most interesting. Call volume ran 40% higher than average, but about $270 million in premium was tied to likely put-buying, according to SpotGamma. Part of that difference was explained by a string of trades in deep in-the-money put contracts expiring in June 2028. About 125 puts with strikes from 2,250 to 2,500 were transacted closer to the ask, suggesting they were bought. By the same logic, 50 trades at the 2,050 strike were likely sold. Micron shares were trading around $1,030.

Taken at face value, the Micron activity would be a net $14.5 million bearish spread position with an options delta near -1, meaning the trade functions like a synthetic short position. Traders may buy deep in-the-money puts instead of shorting a stock if the cost of borrowing the shares is too high or if they want a defined-risk position. In purchasing options, the most they can lose is the premium paid.

Interpreting bid-ask spreads can be murky when analyzing far out-of-the-money trades with low open interest and volume. "Spreads have difficulty being categorized by midpoint analysis as well, because dealers are willing to take a haircut on one leg while getting a better premium with the other," said Jason DeLorenzo, owner and founder of Volland, an options market-structure analytics platform.