Semiconductor ETF Options Signal Caution Ahead of Nvidia's Earnings Report
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Semiconductor ETF options show caution ahead of Nvidia results
NEW YORK, May 27 (Reuters) - Traders in the options markets are bracing for industry-wide volatility when AI-chipmaker Nvidia (NVDA.O), opens new tab reports results on Wednesday, with defensive options contracts on a major semiconductor ETF drawing heavy trading. For VanEck Semiconductor ETF (SMH.O), opens new tab, the largest semiconductors ETF with some $22 billion in assets, about 2.4 put options changed hands daily over the last 10 days against every call option traded, the most defensive the trading has been in about 10 months, according to Trade Alert data. Call options convey the right to buy shares at a fixed price in the future while put contracts offer the right to sell the shares at a given price. "The put buying in SMH ahead of Nvidia's earnings reflects growing concern about potential volatility for the entire sector following the report," said Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group. On Tuesday, some 105,000 put options changed hands against about 16,000 call options, by 3 p.m. ET (1900 GMT), Trade Alert data showed. In one notable trade, one investor last week bought 50,000 put options in SMH that would guard against the ETF's shares slipping about 10%, to below $220, by the end of May. Nvidia accounts for about a fifth of the semi ETF's assets but due to its dominance in the artificial intelligence market, the chipmaker's influence goes beyond its weight in the fund, analysts said. While investors have been focused on defensive plays in the SMH ETF, options action on Nvidia itself was more mixed, Murphy said. Murphy said investors were selling options to take advantage of heightened volatility expectations around the chipmaker's earnings, meaning they were betting the reaction to the chipmaker's results will not be overly severe. "It's been hedging in SMH while in NVDA they're tactically monetizing elevated premiums ahead of earnings," he said. Susquehanna makes markets in the securities of Nvidia. Interactive Brokers' list of the 25 most active securities by client orders showed Nvidia ranked second, underlining the heightened investor interest in the results. Still, the stock was only one of two names for which investors were net sellers. "That likely reflects some caution ahead of earnings after a solid run," Steve Sosnick, Interactive Brokers' chief strategist, said in a note. Nvidia will be the last of the "Magnificent Seven" megacap tech and growth companies to report results for this period. Their stocks have been mixed in 2025 after leading the market higher as a group in the last two years. For the year, Nvidia shares are up about 0.7%, while SMH shares are up about 1.2%. Reporting by Saqib Iqbal Ahmed Editing by Rod Nickel Our Standards: The Thomson Reuters Trust Principles., opens new tab Suggested Topics:ETFs
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Semiconductor ETF options show caution ahead of Nvidia results
Nvidia accounts for about a fifth of the semi ETF's assets but due to its dominance in the artificial intelligence market, the chipmaker's influence goes beyond its weight in the fund, analysts said. While investors have been focused on defensive plays in the SMH ETF, options action on Nvidia itself was more mixed, Murphy said.Traders in the options markets are bracing for industry-wide volatility when AI-chipmaker Nvidia reports results on Wednesday, with defensive options contracts on a major semiconductor ETF drawing heavy trading. For VanEck Semiconductor ETF, the largest semiconductors ETF with some $22 billion in assets, about 2.4 put options changed hands daily over the last 10 days against every call option traded, the most defensive the trading has been in about 10 months, according to Trade Alert data. Call options convey the right to buy shares at a fixed price in the future while put contracts offer the right to sell the shares at a given price. "The put buying in SMH ahead of Nvidia's earnings reflects growing concern about potential volatility for the entire sector following the report," said Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group. On Tuesday, some 105,000 put options changed hands against about 16,000 call options, by 3 p.m. ET (1900 GMT), Trade Alert data showed. In one notable trade, one investor last week bought 50,000 put options in SMH that would guard against the ETF's shares slipping about 10%, to below $220, by the end of May. Nvidia accounts for about a fifth of the semi ETF's assets but due to its dominance in the artificial intelligence market, the chipmaker's influence goes beyond its weight in the fund, analysts said. While investors have been focused on defensive plays in the SMH ETF, options action on Nvidia itself was more mixed, Murphy said. Murphy said investors were selling options to take advantage of heightened volatility expectations around the chipmaker's earnings, meaning they were betting the reaction to the chipmaker's results will not be overly severe. "It's been hedging in SMH while in NVDA they're tactically monetizing elevated premiums ahead of earnings," he said. Susquehanna makes markets in the securities of Nvidia. Interactive Brokers' list of the 25 most active securities by client orders showed Nvidia ranked second, underlining the heightened investor interest in the results. Still, the stock was only one of two names for which investors were net sellers. "That likely reflects some caution ahead of earnings after a solid run," Steve Sosnick, Interactive Brokers' chief strategist, said in a note. Nvidia will be the last of the "Magnificent Seven" megacap tech and growth companies to report results for this period. Their stocks have been mixed in 2025 after leading the market higher as a group in the last two years. For the year, Nvidia shares are up about 0.7%, while SMH shares are up about 1.2%.
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Traders are showing caution in the options market for semiconductor ETFs as Nvidia, a major AI chipmaker, prepares to release its earnings report. This reflects growing concern about potential volatility in the entire semiconductor sector.
Semiconductor ETF Options Signal Market Caution
As AI chipmaker Nvidia prepares to release its earnings report, traders in the options market are showing signs of caution, bracing for potential industry-wide volatility in the semiconductor sector. The VanEck Semiconductor ETF (SMH), the largest in the industry with $22 billion in assets, has seen a significant increase in defensive options trading
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.Defensive Trading Patterns
Over the past 10 days, the SMH ETF has experienced a ratio of 2.4 put options traded for every call option. This represents the most defensive trading pattern observed in about 10 months, according to Trade Alert data
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. On Tuesday alone, approximately 105,000 put options were traded against only 16,000 call options by 3 p.m. ET2
.Notable Defensive Moves
One particularly significant trade involved an investor purchasing 50,000 put options on SMH, effectively hedging against a potential 10% drop in the ETF's share price to below $220 by the end of May
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. This large-scale defensive move underscores the level of caution in the market.Nvidia's Outsized Influence
While Nvidia accounts for about a fifth of the SMH ETF's assets, its influence extends beyond its weight due to its dominance in the artificial intelligence market. Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group, noted that the put buying in SMH ahead of Nvidia's earnings "reflects growing concern about potential volatility for the entire sector following the report"
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Source: Reuters
Mixed Sentiment on Nvidia
Interestingly, while the SMH ETF shows defensive positioning, options activity on Nvidia itself presents a more mixed picture. Murphy observed that some investors were selling options to capitalize on heightened volatility expectations around Nvidia's earnings. This suggests that these traders are betting that the reaction to Nvidia's results may not be as severe as the broader market anticipates
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Investor Interest and Market Position
Nvidia's importance in the market is further highlighted by its ranking as the second most active security by client orders on Interactive Brokers' list of top 25 securities. However, it was also one of only two names on the list where investors were net sellers, potentially reflecting caution after the stock's recent strong performance
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.Market Performance
As of the latest data, Nvidia shares have seen a modest increase of about 0.7% for the year, while SMH shares are up approximately 1.2%. Nvidia's upcoming earnings report is particularly significant as it will be the last of the "Magnificent Seven" megacap tech and growth companies to report results for this period
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.The options market activity surrounding Nvidia's earnings report reflects a complex mix of caution, speculation, and strategic positioning by investors in the face of potential market volatility. The outcome of Nvidia's report could have far-reaching implications for the entire semiconductor sector and, by extension, the broader technology market.
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