SerpApi.Org
After a rather rough month for semiconductor stocks, the bounce seen the past few days may have some wondering if the storm has passed. But continued high volatility readings for the sector warn that it’s still too soon to confidently buy the dip.
The VanEck Semiconductor ETF has already seen a year’s worth of action in less than seven months. The exchange-traded fund has bounced nearly 6% this week, as of recent afternoon trading Wednesday, after ending last week 16.8% below its June 22 record close as worries about the sustainability of the artificial-intelligence trade grew. Before that correction, the SMH ETF had rocketed 85.7% to start the year.That has led to some pretty unusual activity in the options market, with respect to how volatile the ETF is expected to be.
Volatility is a key component in the pricing of options, as it determines how likely a strike price will be reached, depending on the time to expiry. The higher the implied volatility, the more likely the option to buy or sell is exercised, which means the higher the price for that option.
Under normal conditions, volatility is often viewed as a fear gauge, as it tends to rise as prices fall, because stocks tend to fall faster than they rally. But chip stocks have not been trading normally this year.
For the most part, the Cboe Semiconductor ETF Volatility Index has been rising along with the SMH ETF. The correlation coefficient between the volatility index and the ETF for the first half of 2026 was 0.77, according to a MarketWatch calculation of FactSet data — which is considered very high, given that a reading of 1.00 means they move exactly in sync.
The fact that they’ve moved up together “marks a period of extremely aggressive buying, culminating in a parabolic uptrend,” Adam Turnquist, chief market strategist at LPL Financial, told MarketWatch. While Turnquist acknowledged that these periods of high correlation are pretty rare, he said they are not completely unprecedented.
For example, at the tail end of the dot-com bubble, when the Nasdaq Composite soared 51.5% during the second half of 1999, the correlation between the index and Cboe Nasdaq Volatility Index was 0.70. In the year that followed the bubble bursting, the correlation swung to a more normal reading of minus 0.61.
Meanwhile, so far this month as the SMH pulled back, the correlation between the ETF and its volatility index has swung to minus 0.78 through Tuesday, meaning volatility increased as prices fell.
Some may view the return to more normal movement for the Cboe Semiconductor ETF Volatility Index as a sign that the market has already priced in a lot of fear. That, coupled with the recent bounce, could suggest that a low may have already been seen.
But LPL’s Turnquist cautions against making that conclusion. He said note that the semiconductor volatility index remains at an “extremely high level” — particularly when compared with the Cboe Volatility Index which is a measure of volatility for the S&P 500
The Cboe Semiconductor ETF Volatility Index closed Tuesday at 61.21, off Monday’s record high of 64.57, while the VIX closed at 17.05 on Tuesday. Even at the VIX’s highest close this year, at 31.05 on March 27, expected volatility was about half that for chip stocks.
What that means to Turnquist is that chip investors can continue to expect a lot of turbulence for the SMH ETF in the short term. With semiconductor volatility reading at current levels, a trading down of another 10% in the SMH ETF could still be considered just mean reversion after such a sharp run-up.
“We don’t see it as a super attractive risk-versus-reward trade at the moment,” Turnquist said.
