To The Moon

Part 1: Market Recap

• July 16: S&P 500 closed at 7,533.77, up only +0.46% month-to-date in July. But during the same period, Micron (MU) plunged 26% in July, and the Philadelphia Semiconductor ETF (SOXX) crashed 17.21%.

• The root of this semiconductor crash lies in the Korean stock market — as of today, the KOSPI index has plunged 19.53% in July.

Part 2: The Three Early Warning Signs of the Crash

1️⃣ Option Warning Signs (Smart Money Was Already Moving)

• June 18 | DRAM saw a large bearish trade: buying the 8/21 expiry 60 Put$DRAM 20260821 60.0 PUT$  , with 50,000 contracts traded, notional value $21.75 million, still open.

• Same day | MU also saw a large bearish trade: buying the 6/18 expiry 990 Put$MU 20260821 990.0 PUT$  , with 2,900 contracts traded, notional value $33.56 million, still open.

2️⃣ Warning Signs from Fundamentals / News Flow

• June 23: South Korea's top financial regulator severely criticized single-stock leveraged ETFs tracking Samsung and SK Hynix, and proposed measures to curb market distortions. That day, KOSPI plunged 10.5%, SK Hynix dropped 12.5%, and Samsung fell 12.3%. Separately, lawmakers proposed taxing unrealized gains.

• July 2: Blackstone's data center operator QTS announced the termination of the world's largest data center project, Digital Gateway. Data shows that in Q1 2026, 75 data center projects across the U.S. have been blocked or delayed by local opposition, with a notional value of approximately $130 billion, and 10 states are considering development moratoriums.

• July 6: The Token Spending Index dropped nearly 20% from its May peak, reflecting declining willingness among buyers to absorb costs.

• July 7: Samsung reported Q2 earnings; its stock fell.

• July 10: SK Hynix ADR listed; its stock fell.

• Earnings season approaching: The market began questioning whether massive capex can be sustained. Morgan Stanley believes the cycle phase has shifted — the industry is moving from "infrastructure frenzy + earnings beats" to "optimization and adjustment + validating earnings durability."

• July 14: The New York State Governor signed an order halting new hyperscale data center construction.

• July 16: Trump criticized New York's decision as terrible and called for an immediate reversal of the data center policy.

Part 3: Why Does the Korean Crash Drag Down U.S. Stocks?

Global capital flows are interconnected, and the AI supply chain is highly globalized. Liquidity shocks trigger cascading selloffs. On July 17 (Friday), the Korean market was closed, but the Shanghai Composite fell 3.05%, Nikkei fell 4.03%, and Taiwan stocks fell 6.47%. U.S. markets opened down 1.46% before rebounding.

Part 4: How Far Have the Short Sellers Gone?

• This storage sector crash is a key focus for short sellers, who have concentrated their positions in DRAM put options. Based on mid-June positioning, the DRAM target was 50, with some shorts moving down to 40 in early July.

• But on July 16, two conflicting large trades emerged, making the outlook murky:

  • 87,000 contracts of the 7/31 expiry SMH 500 Put $SMH 20260731 500.0 PUT$

  • 35,000 contracts of the 9/18 expiry SKHY 200 Call $SKHY 20260918 200.0 CALL$ (same day)

• Combining all targets, the shorts' overall pullback target appears to be around the 120-day MA and 20-week MA. Based on this, the SMH short trade looks more like catch-up downside.

• Since DRAM only recently listed and has no 120-day MA, we use the Korea ETF EWY as a proxy — EWY has already fallen to above its 120-day and 20-week MAs, but whether it continues to catch down with SMH remains unclear.

• Looking at expirations, the shorts' target dates are concentrated within July, with the focal point likely around the week of July 24. Therefore: if the selloff stabilizes during the week of July 24, it may be time to start considering bottom-fishing.

• ⚠️ Note: Although we saw a bounce on Friday, the rebound failed to reclaim the 5-day MA, keeping the trend still in a downward bias. We need to watch next week's bounce strength.

Part 5: Is the AI Fundamentals Still Intact?

Demand remains strong, and technology continues to advance. However, regulation has raised the conversion cost from "tech capability" to "earnings," making AI's monetization path more fragile and thereby weighing on valuations. On the flip side, when valuations return to attractive levels, capital will most likely not pass up a bargain.

Part 6: Where Are We Now? When to Bottom-Fish?

• It's advisable to observe for another week — the chain reaction from margin liquidations is unpredictable.

• There is already a large bottom-fishing trade in SKHY: selling the 8/21 expiry 85 Put$SKHY 20260821 85.0 PUT$, with 66,000 contracts traded, notional value ~$5 million, still open.

• Many media outlets are comparing this Korean deleveraging crash to the 2015 A-share deleveraging. However, with Anthropic expected to list in October, and storage names being AI leaders, Wall Street may not let these trend stocks fall indefinitely.

• An alternative conspiracy theory suggests this round is Wall Street forcing retail leveraged positions to liquidate, allowing institutions to scoop up shares at lower levels.

⚠️ Risk Warning: Beware of 3x Leveraged ETF Wipeouts
In extreme market conditions, it is not advisable to sell options on single-stock 3x leveraged ETFs — extreme volatility can easily trigger a wipeout of 3x leveraged ETFs, and history is full of such lessons.