Semiconductor ETF (SMH): Who Holds the Leash

By Juri von Randow · 16 September 2025 · Tuesday Target 38/52 2025

Why the tape now writes Fed policy, how a record call-heavy expiry rents its calm, and where a bullish chip ETF fits a bearish book.

An Unelected Regulator With a Terminal

The letter opens with a heresy that most desks would rather not say aloud. The people supposedly in charge of this market, the Fed chair, the White House, the various ministries of grievance, take their cues from the tape. A soft patch in futures and a tariff loses its teeth. A lurch in yields and a spending bill goes back to the drafting table. A press conference from Powell reads less like a lecture on models than like a hostage negotiation with the front month.

Weak data reads as a promise of easier money, so the dip gets bought before any recession has a chance to introduce itself. The letter calls this a loop: the officials walk as though they hold the leash, and the animal on the end of it chooses the route. The danger sits at the moment nobody can price, the day a tug goes unanswered and the leash gives way. Then it becomes a question of brick wall or squirrels, and no model tells you which.

Calm Bought With Call Hedges

Beneath that grand loop sits a smaller, mechanical one that matters far more to anyone holding options. Friday's expiration is the biggest ever, a trillion dollars of notional rolling off, and the positioning is grotesquely lopsided: roughly eleven calls for every put. Dealers short those calls hedge by selling into strength and buying weakness, which pins the index into narrow ranges and squeezes realised volatility toward levels that would embarrass a savings account.

For an options trader this is the whole point. The calm on the screen is rented, paid for by dealer hedging, and it expires with the paper. When that hedge unwinds, the gravity holding the index in place goes with it. Premium looks cheap for a reason, and it looks cheap right up until the reason disappears. The market is quiet in the way a dog is quiet when it has spotted something across the road.

Bullish Chips in a Bearish Book

The letter picks a semiconductor ETF and runs a bullish structure into what it openly calls a melt-up. That reads like a contradiction against the leash-snapping thesis until you see the book it lands in. The overall portfolio carries a heavy negative delta, leaning bearish, and a long-biased chip position is ballast rather than conviction. The point is to stop the whole book from betting the same direction everywhere while the market still decides policy for everyone.

The structure also tilts the payout toward more reward per unit of risk than an even-money setup, with room for a normal pullback before the trade is in real trouble. Earnings season adds the fuel. Whether the chips keep melting up matters less than whether the position pays for itself against the rest of the book if they do.

When the Leash Snaps

Wednesday belongs to the Fed, with another cut priced and a long string of further cuts expected within the year, all delivered with stocks at record highs and an economy still refusing to roll over. Sixteen central banks meet across the same stretch, the Bank of Canada nearly certain to cut, the BoE and BoJ mostly expected to sit. On the data side: retail sales, housing starts and the Philly Fed for the US, ZEW sentiment and CPI in Europe.

Watch the fiscal engine too. Leading indicators keep flashing recession, and GDPNow shrugs because deficits and retiree spending keep the money moving. The tape trades the flow of that spending and ignores the warning lights. Then the US-China double game: a TikTok framework and a tariff truce stretched into November, paired with an antitrust finding against Nvidia in Beijing. Give a little, squeeze where the leverage sits. That is a chip-sector variable dressed up as diplomacy, and it sits directly on the instrument in question.

Friday's expiry clears the pin. Whatever the index does after that is the market speaking without a hedge holding its mouth shut.

This page is the write-up. The full letter, with the trade and its exit rule, is on Substack.

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Fed policy · options expiry · bullish options setup