On Semiconductor Plunges 14%: What's Fueling the Sudden Sell-Off?

Summary
• On Semiconductor (ON) drops 14.19% to $48.755, its lowest intraday level since February 2025
• Sector leader Texas Instruments (TXN) defies weakness with 0.87% intraday gain
• ProShares Ultra Semiconductors (USD) ETF rallies 5.46%, signaling sector divergence
• Options chain shows explosive put buying as implied volatility surges over 50%

On Semiconductor’s 14% intraday collapse has sent shockwaves through the semiconductor sector, despite mixed signals from industry peers. The stock has cratered from its $54.84 opening high to a $48.69 low, with leveraged ETFs like USD showing resilience. With AI-driven chip demand expected to surge, this divergence raises urgent questions about ON’s fundamentals versus sector-wide dynamics.

Capital Flight Amid AI-Driven Sector Rebalancing
The selloff follows a strategic rebalancing in the semiconductor sector as investors shift toward AI-specific chipmakers. While Nikkei reports $135B in global semiconductor capex for 2025, ON’s recent earnings report highlighted 'stabilizing end markets' rather than growth. This contrast with peers like AMD and Arm, which are gaining share in data center processors, has triggered profit-taking. The options market confirms this with 1,313 contracts traded on the ON20250815P44 put, showing extreme bearish positioning despite the stock not breaching key support levels.

Semiconductor Sector Mixed as ON Plummets Despite TXN Gains
While Texas Instruments (TXN) defies the downturn with 0.87% gains, ON’s 14% drop highlights sector divergence. The ProShares Ultra Semiconductors ETF (USD) rallies 5.46%, suggesting broader sector strength. This dislocation points to specific concerns about ON’s exposure to legacy analog markets versus AI-driven growth segments. The 52-week high of $78.61 for ON remains distant, but the 52-week low of $31.04 now appears more tangible given current momentum.

High-Volatility Playbook: Options and ETFs for the ON Drop
• MACD: 1.04 (bearish) • RSI: 43.46 (oversold) • 200D MA: $54.12 (below) • Bollinger Bands: 54.76 (lower) • Volume: 20.2M (4.86% of float)

The technicals paint a bearish near-term picture with oversold conditions but no immediate reversal signals. ProShares Ultra Semiconductors (USD) offers leveraged exposure at +5.46%, but ON’s divergence suggests caution. For options traders, the ON20250815C48 and ON20250815C49 contracts offer compelling risk/reward:

• ON20250815C48 (Call):
- Strike: $48
- Expiry: 8/15
- IV: 55.54% (moderate)
- Delta: 0.5558 (moderate sensitivity)
- Gamma: 0.0811 (high sensitivity to price swings)
- Turnover: $6,013 (liquid)
• ON20250815C49 (Call):
- Strike: $49
- Expiry: 8/15
- IV: 57.10% (moderate)
- Delta: 0.4762 (balanced sensitivity)
- Gamma: 0.0795 (high responsiveness)
- Turnover: $17,836 (highly liquid)

Both contracts offer asymmetric payoffs if ON stabilizes above $49.50. A 5% downside scenario to $46.32 would yield 3.2x returns on the $48 strike. With theta decay at -$0.1673 and -$0.1581 respectively, time decay remains manageable for 8/15 expiry. Aggressive bulls may consider ON20250815C48 as a short-term reversal play if support holds.

Backtest On Semiconductor Stock Performance
On July 31, 2025, ON Semiconductor (ON) experienced a significant intraday plunge of 14%, which raises concerns about its short-term and medium-term performance. Backtesting the stock's performance after such a substantial drop is crucial for understanding its potential recovery and the likelihood of returning to previous levels.1. Short-Term Recovery: - The 1-day win rate following the intraday plunge is 54.47%, indicating a higher probability of a positive rebound in the immediate term. - The 3-day win rate is 53.67%, suggesting that ON Semiconductor tends to recover moderately quickly from such large declines.2. Medium-Term Performance: - The 10-day win rate is 55.33%, which is slightly higher than the 1-day and 3-day win rates, indicating a good chance of recovery over a longer period. - However, the 10-day win rate is still not exceptionally high, suggesting that while there is a reasonable probability of recovery, it may take longer than expected.3. Long-Term Outlook: - The 30-day win rate drops to 57.17%, showing that maintaining gains over a longer period becomes increasingly challenging after an intraday collapse. - This indicates that while ON Semiconductor may recover from the intraday plunge, it might not immediately return to its previous upward trajectory.In conclusion, while ON Semiconductor has a reasonable chance of recovery from a 14% intraday plunge, the win rates suggest that the recovery may take time, and the stock may not return to its previous performance level immediately. Investors should monitor the stock's performance closely, especially in the short to medium term, for signs of recovery and potential re-entry opportunities.

Critical Juncture: Will ON Hold Above $48.50?
ON’s survival hinges on maintaining $48.50 support, with a breakdown below $47.50 triggering panic. The 52-week low of $31.04 remains a distant concern, but near-term focus should be on the $49.50 psychological level. While sector leader Texas Instruments (TXN) gains 0.87%, this divergence suggests ON’s weakness is idiosyncratic rather than systemic. Traders should prioritize liquidity in the 8/15 options chain and monitor the ProShares Ultra Semiconductors (USD) ETF for sector sentiment cues. A decisive close above $50.50 would validate the $48 call options as a high-conviction trade.