October 10, 2014 / 7:29 PM / 4 years ago

More volatility ahead for chipmakers after Microchip warning

NEW YORK (Reuters) - Shares of U.S. chipmakers are expected to remain volatile in coming weeks, options activity showed on Friday, a day after Microchip Technology Inc (MCHP.O) spooked the market by warning of a broad-based industry downturn.

A number of U.S. semiconductor makers with global operations have in recent weeks suggested various industries, including autos and network equipment, are reducing demand for chips in regions ranging from Asia to Europe.

Thursday’s warning by Microchip Chief Executive Steve Sanghi that the correction will spread more broadly across the industry in the near future sent shares of chipmakers lower on Friday and drove up trading in the options market.

The specter of an industry-wide correction sent semiconductor companies’ implied volatility, a measure of the risk of big moves in a stock, soaring as the CBOE Volatility Index .VIX hit its highest level since December 2012.

“Demand for options of either persuasion – volatility positioning and outright protection – has boosted implied 30-day readings sharply,” Andrew Wilkinson, chief market analyst at Interactive Brokers Group, wrote in a note.

The 30-day implied volatility for Microchip, whose shares fell 11 percent to $40.59 on Friday, rose 4.2 percent to a new year-high of 33.90 percent.

Implied volatility for other semiconductor companies, including Skyworks Solutions (SWKS.O), Avago Technologies (AVGO.O) and Cavium (CAVM.O), jumped sharply to their highest levels in the past year, according to Livevol Inc data.

Options activity for industry bellwether Intel Corp (INTC.O), which is due to report third quarter results on Oct. 14, was 2.6 times the usual volume, at 241,000 contracts traded.

Micron Technology Inc (MU.O), a maker of dynamic random access memory, or DRAM, was the third-most traded name in the options market on Friday with a total of 402,992 contracts traded by 3:07 EST, according to Livevol Inc data. It was also the most active stock on Nasdaq, with more than 70 million shares traded.

Options volume for Intel was the sixth largest on Friday.

Reporting by Saqib Iqbal Ahmed; Editing by Richard Chang

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