On Semiconductor Plunges 7.24%—What's Fueling the Sudden Sell-Off?

Summary
• ON Semiconductor (ON) shares gapped down to $54.54 intraday, a 6.9% drop from the previous close of $59.61
• Expanded collaboration with Schaeffler for EliteSiC-based PHEV platform announced at 18:59 ET
• Options market sees explosive activity in 2025-08-01 expiration series, with 1,423 contracts traded for the $59 call

The semiconductor sector faces a sharp correction as ON Semiconductor's stock collapses amid mixed signals from its expanded automotive partnership. With the stock trading below key moving averages and options volatility spiking, the market is scrambling to decipher whether this is a short-term selloff or a deeper bearish shift in investor sentiment.

Schaeffler Collaboration Sparks Volatility
The sudden selloff follows onsemi's announcement of an expanded collaboration with Schaeffler to develop a silicon carbide-based traction inverter for plug-in hybrid electric vehicles. While this partnership positions onsemi as a key player in the EV supply chain, the market appears to be pricing in near-term execution risks. The 30-day moving average at $55.91 and 200-day average at $54.59 suggest the stock is trading near critical support levels, with the intraday low of $54.54 nearly touching the 200-day line. This technical weakness, combined with mixed analyst ratings ranging from 'Hold' to 'Buy', has created a fragile price environment.

Semiconductor Sector Weighed by Waning Momentum
The broader semiconductor sector shows signs of exhaustion, with WOLF (Wolfspeed) up just 0.29% despite ON's collapse. This divergence suggests the selloff is stock-specific rather than sector-wide. Leveraged ETFs like OKLL (24.2% gain) and SMU (8.7% gain) continue to outperform, reflecting lingering optimism in the sector. However, ON's -7.24% decline contrasts sharply with the 2.69% turnover rate indicating heavy institutional selling pressure.

Options Playbook: Navigating the Volatility Spike
• 30-day MA: 55.91 (near current price), 200-day MA: 54.59 (support), RSI: 61.8 (neutral), MACD: 2.71 (bullish)
• Bollinger Bands: Upper 63.44, Middle 57.42, Lower 51.39 (stock at 55.49 near lower band)

With the stock trading near critical technical levels, traders should focus on short-term volatility plays. The 2025-08-01 $59 call (ON20250801C59) stands out with 123% leverage ratio and 46.48% IV, offering high reward potential if the stock rebounds above $59. Meanwhile, the $56 call (ON20250801C56) at 43.93% leverage provides a more conservative play with strong liquidity (37,223 turnover).

Top Option 1: ON20250801C59
• Code: ON20250801C59
• Type: Call
• Strike: $59
• Expiry: 2025-08-01
• IV: 46.48% (moderate)
• Leverage: 123% (high)
• Delta: 0.205 (moderate sensitivity)
• Theta: -0.117 (significant time decay)
• Gamma: 0.070 (strong price sensitivity)
• Turnover: 162,061 (high liquidity)
This contract offers maximum leverage if the stock breaks above $59. The 123% leverage ratio means a $1 move could yield 2.46x return, while the moderate IV ensures reasonable premium costs. Given the stock's proximity to the 200-day MA, this is ideal for traders anticipating a bounce.
Top Option 2: ON20250801C56
• Code: ON20250801C56
• Type: Call
• Strike: $56
• Expiry: 2025-08-01
• IV: 44.09% (moderate)
• Leverage: 43.93% (high)
• Delta: 0.453 (strong sensitivity)
• Theta: -0.201 (high time decay)
• Gamma: 0.103 (very strong price sensitivity)
• Turnover: 37,223 (high liquidity)
This option provides a safer play with a 43.9% leverage ratio and strong gamma. If the stock breaks above $56.50 (the next key resistance), this contract could see rapid acceleration. The 44.09% IV suggests market anticipation of near-term volatility.
Payoff Scenario: Assuming a 5% downside to $52.72, the $59 call would expire worthless while the $56 call would have limited value. However, if the stock stabilizes above $54.59, the $56 call could see significant gains due to its high gamma and leverage. Aggressive bulls should consider ON20250801C59 if $59.61 (previous close) holds; conservative traders may target the $56 call into a breakout above $56.50.

Backtest On Semiconductor Stock Performance
The strategy that holds the market after an initial 7% intraday plunge shows no return, significantly underperforming the benchmark, which delivered a 88.19% return over the same period. The strategy's zero return and lack of excess return indicate it failed to capitalize on the market's positive movement following the plunge.

Bullish Catalysts Loom—Act Now Before the Next Move
The selloff appears to be creating a buying opportunity for long-term investors, particularly with the stock nearing its 200-day MA support. While the short-term technicals remain bearish, the expanded Schaeffler partnership represents a fundamental catalyst that could drive the stock higher in the coming months. Traders should monitor the $54.59 level for a potential bounce and consider the $56/59 call options for leveraged exposure. With Wolfspeed (WOLF) up 0.29% despite the sector weakness, now is the time to position for the next leg of the semiconductor recovery cycle. Watch for a break above $56.50 or a regulatory catalyst to trigger a reversal.