This 'win-win' hedge trade is getting popular with traders

A trader works on the floor of the American Stock Exchange AMEX) at the New York Stock Exchange (NYSE) in New York, US, on Wednesday, May 6, 2026. Michael Nagle | Bloomberg | Aggressive options trading in the semiconductor stocks is creating a volatility spread that's being used by traders to stay bullish in the sector that's rallying the most, while simultaneously hedging risks in the broader market. The trade is fairly simple: sell downside protection in semiconductor names where volatility is expensive, and buy downside protection in the S&P 500 , where it's relatively cheap, with VIX this week touching the lowest levels in three months. Here's why it's uniquely compelling at this juncture. Implied volatility in the VanEck Semiconductor ETF (SMH) is 46, more than 2.5 times that of the S&P 500, where the Cboe Volatility index (VIX) trades around 17. Oftentimes volatility moves down as stocks grind higher, but in the case of chips, where prices are moving parabolic, volatility is rising alongside prices. Stock Chart Icon Stock chart icon VanEck Semiconductor ETF, YTD As a result, traders are shifting some of that call-buying appetite in SMH towards selling of puts instead: on Wednesday, more than 5x more puts were sold versus calls bought. It's still a bullish view on the sector, but more specifically targeting the rich premiums of the options. The second part of the trade is to use that income to go long volatility in the S&P 500 via index puts or VIX calls. …