SMH, the VanEck Semiconductor ETF, provides exposure to major semiconductor companies, such as NVIDIA, TSMC, and Broadcom. This fund, consisting of around 25 stocks, exhibits higher volatility due to the dominance of large chipmakers.
Currently, SMH is progressing through a bullish five-wave impulse from April’s lows, as per Elliott Wave theory. The ETF is potentially in the final Wave 5, with continuation towards the 400 area expected, despite short-term fluctuations.
Potential For Upward Movement
The broader pattern shows a potential for further upward movement, completing a smaller five-wave impulse within the fifth wave. Optimistic market sentiment could push semiconductor stocks higher until late 2025 or early 2026.
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The VanEck Semiconductor ETF (SMH) is extending the strong rally that began back in April 2025, with its current upward trend pointing towards the $400 level. This final bullish wave is being driven by strong risk-on sentiment in the market. We see this as a continuation of the powerful move in chip stocks that has defined the year.
Recent data supports this bullish view, as the November Consumer Price Index (CPI) report confirmed that inflation has cooled to 2.1%, reinforcing our belief that the Federal Reserve will not raise rates in early 2026. Global semiconductor sales also beat expectations last quarter, fueled by ongoing investments in AI infrastructure. These factors create a favorable environment for the sector to continue its climb.
Strategies For Derivative Traders
For derivative traders, this suggests positioning for more upside into the new year. We are looking at buying call options with strike prices near or above the $400 target, focusing on expirations in January and February 2026 to allow time for the move to materialize. Selling out-of-the-money put spreads is another strategy to consider, taking advantage of elevated volatility to collect premium.
We must remain prepared for potential short-term pullbacks, as this is a pattern we saw during the major AI-driven rally of 2023-2024. Any dips towards the $375-$380 support zone should be viewed as opportunities to initiate or add to bullish positions. The broader upward trend remains firmly intact as long as the ETF holds above the lows set in October.
Implied volatility in SMH options remains high, which makes selling premium attractive but also signals that the market anticipates significant price swings. This means that while option premiums are expensive, they could provide explosive returns if the ETF’s price accelerates past the $400 mark. We are carefully weighing the cost of these options against the potential for a strong finish to 2025 and a bullish start to 2026.
