A Way to Play the Semis

The semis are always a closely watched sector. Don Hays, who was on CNBC on Friday and is a much followed forecaster, has predicted the semis to double this year. Up until now however though semi stocks (the semi vendors) such as MRVL and TXN have found a place around their 52 week lows after they've been beaten down by fears of a growing glut in semiconductors. Now though that some stocks have moved down considerably and have "priced in" the bad news, these stocks seem interesting to many to try and make a bet on these company's future prospects.

Many people are ready to buy these stocks, with any hint about a brighter future in guidance leaving these stocks including recent reporters SNDK and MU being bought up. Instead of purely buying these stocks though, there is another way of playing them with mitigated risk. This morning on RealMoney.com (which I suggest everyone get a subscription to) Cody Willard suggested a pairs trade involving semi suppliers and semi vendors. What he suggests is going long semi vendors (using long dated out of the money options) which are near 52 week lows and go short (via long dated out of the money options) semi suppliers which are at or near 52 weeks highs and "are all at risk as the semi-vendors to which they sell have finally embraced the glut's reality and pulled back on the buildout reins".

I think this an excellent hedged play on this group. As far as the success of the strategy, we will find out in the future.

That's it for now. I'll be back in a bit.