Editor’s Note: In January 2025, Jim Pearce closed Personal Finance’s NVIDIA position after a 975% gain in 28 months. His reasoning then: “the combined market cap of AI stocks far exceeds the total addressable market for AI over the remainder of this decade. There isn’t any room for disappointment.” That same logic runs through today’s article. Read what Jim built after he exited NVIDIA →

The lack of clarity regarding an end to the war in Iran is evident in the stock market’s behavior. Since hitting an all-time intraday high above 7,600 on June 2, the S&P 500 quickly backtracked to below 7,300 one week later.

That put the index back to where it was in early May, which at that time was a new record high. Despite its up and downs over the past month, the index is up more than 7 percent (as of June 11) since the war began at the end of February.

The recent breakdown in negotiations between the United States and Iran has some investors worried that a stock market correction may be on the way. If the Strait of Hormuz does not reopen soon, higher fuel costs could impede economic growth, drive inflation higher, and eat into corporate earnings.

If that happens, the stock market could drop a lot more until it finds technical support. When the White House announced its “liberation day” reciprocal tariff plan in April 2025, the State Street SPDR S&P 500 ETF Trust (NYSE: SPY) traded all the way down to its technical support level around 477 as shown in the chart below.

That drop represented a loss of 28 percent, which it quickly made up after that idea was scrapped. In the process, it created a new short-term technical support level around 612.

The SPY traded down to that level three months ago, shortly after the war in Iran began. It then rallied strongly in April and May to rise above 750.

Trading Places

If that turns out to be its short-term peak, then the SPY could fall all the way to 612 again before leveling off. In percentage terms, that would equate to a decline of 24 percent from its peak two weeks ago.

That would be bad news for passive investors sitting in an index fund such as the SPY. But for active investors, that degree of volatility can create some exceptional trading opportunities.

A week ago, I identified “3 Comeback Stocks for the Second Half of 2026.” While Wall Street was busy bidding up semiconductor stocks to unsustainable heights over the past two months, these companies were ignored.

I believe that trend will reverse during the second of this year. I don’t expect my three comeback stocks to start appreciating until the Strait of Hormuz reopens but once it does, they could move quickly.

If I turn out to be correct about that, then there is another way to profit from that reversal. In addition to betting on stocks that might fare well during that process, I’m also focusing on overvalued stocks that could be in for a rough time.

Expensive SOXX

This year, the iShares Semiconductor ETF (NSDQ: SOXX) is up more than 80 percent. Its top ten holdings are names you would recognize, including Micron Technology (NSDQ: MU), Advanced Micro Devices (NSDQ: AMD), and Intel (NSDQ: INTC). Micron and Intel have tripled in value this year, while AMD has more than doubled in share price.

For that reason, buying a put option on the SOXX is expensive (a put option increases in value when the price of the underlying security goes down). A few days ago while the SOXX was trading near 575, the put option that expires this December at that strike price was going for $125.

Since that option was at the money, that means all of the option premium is speculation. For that option trade to be profitable, the SOXX must drop to 450 before the end of this year. To do that, it must first break through its short-term technical support near $540 as shown in the chart below.

A decline of 22 percent in just six months may seem unlikely, but it was only ten weeks ago that the SOXX rose above that price for the first time ever. Six months ago, it was below 350.

In this case, I’m okay with the size of the put option premium in relative terms. However, it would cost me $12,500 to open that trade since options contracts are for 100 shares.

Instead, I suggest buying a put option on an individual semiconductor stock with a share price below $100. Even if the relative cost of the contract is the same, the absolute cost is considerably lower.

Last week, I identified a semiconductor stock for my subscribers that is up 275 percent this year. Even better, its share price is well under $100. It only cost me $600 to make that trade since the cost of the put option was $6 a share.

I still need the same sized move as the SOXX for this trade to pay off, but I’m risking a lot less money. To my way of thinking, that is a smarter way of betting on a big drop in semiconductor stocks. This way, I have more control over how much money I am putting at risk while using a security that could be more volatile than the entire sector.

The logic I’m applying to semiconductor puts today is the same logic I applied to my NVIDIA position in January 2025: when a sector has run 80–300% in a year and the market cap of the trade far exceeds the actual addressable opportunity, there is no room for disappointment. I closed that NVIDIA position at +975% after 28 months. The proceeds didn’t go into another mega-cap chip name — they went into a different category of company entirely, one where AI is a cost tool quietly widening margins rather than the entire story. That portfolio is the subject of my new briefing. See the AI Margin Rotation briefing — $49 for the first year →