The semiconductor shortage is disrupting supply chains and wreaking havoc across multiple industries this year, which has been a boon for the chip trade itself.
The SMH semiconductor ETF has outperformed the Nasdaq through the first quarter -- the ETF has rallied 11% compared with the broader index's 3% gain. But the options market seems to be predicting a pullback in the space when Micron reports earnings, scheduled for after the bell Wednesday.
"This is a name that's implying a move of about 6% [in either direction] after they report earnings. That's in line with the 6.5%, or so, that they've averaged over the last eight quarters," Michael Khouw, chief investment officer at Optimize Advisors, said Tuesday on CNBC's "Fast Money."
"Now usually calls significantly outpace puts on that stellar performance that the sector has seen. Today, however, the most active options were actually the weekly 82.5 strike puts that expire on Thursday. Over 4,300 of those traded for about $1.20, and most of that was the result of an institutional buy."
While an outright bearish bet on its face, a buy of that size may well represent a hedge against a long position in Micron, functioning more as an insurance purchase rather than a bet against the company itself.
"The buyer of those puts is obviously betting that there's some risk that the earnings could be disappointing, and that the stock could trade below that 82.5 strike by at least the $1.20 that they paid," said Khouw.
If that were to happen, it would represent a fall of about 6% from Tuesday's close, which is just about in line with what the overall options market is predicting could happen to Micron's stock by Thursday's close.
Micron was up more than 1.5% in Wednesday's session.