Dan Deming's SMH Trade

Dan Deming of KKM Financial shared with the viewers of Bloomberg Markets his options strategy in VanEck Vectors Semiconductor ETF SMH. He thinks the stock is going to challenge its highs and he is looking to get a long position using options.

He wants to buy the Oct. $115 call and sell the Oct. $120 call and the Oct. $125 call. This options structure is called a call tree and to take this position you have to buy an in the money call, sell an at the money call and an out of the money call.

The trade would cost him $1.50 and it can make money if the stock trades above $116.50. It's important that the stock stays below $125 because above that price level the profit starts to trail off and above $128.50, it starts to lose money. The maximal profit for the trade is $3.50.