TSM is in a sweet spot. It is one of the few manufacturers of chips in shortage worldwide, particularly in the automotive industry. TSM is a true manufacturer supplying chips for several semiconductor companies that have turned to outsourcing their manufacturing needs.
The stock is already up 25% this year as it supports the 20-day moving average. In fact, the stock has closed just one day below this trendline since early November. Stocks pulled back this week but found support again on the 20-day Friday. With strong support and a full production pipeline, TSM seems unstoppable. And we take a bullish position on a pullback.
If you’re fine for TSM’s rally to continue, consider the following trade, which has the stock staying above $ 135 for the time to expire in four weeks.
Buy to open TSM 19MAR21 130 Put (TSM210319P130)
Sale to open TSM 19MAR21 135 Put (TSM210319P135) for $ 2.00 credit (sale of a vertical)
This credit is $ 0.05 below the midpoint of the options spread when TSM was trading near $ 137. If the stock doesn’t recover quickly from here, you should be able to get close to that amount.
Your commission on this trade is only $ 1.30 per spread. Each spread would then be $ 198.70. This will reduce your purchasing power by $ 500 and your investment by $ 301.30 ($ 500 – $ 198.70). If TSM closes above $ 135 on March 19, both options will expire worthless and your return on the spread will be 66% ($ 198.70 / $ 301.30) or 857% on a yearly basis.
As with all investments, you should only trade options with money that you can really afford to lose.
Have fun trading,
Tags: Bearish Options Strategies, Bullish Options Strategies, Monthly Options, Portfolio, Profit, Profits, Puts, Risk, Taiwan Semiconductors, Terry’s Tips, TSM, Weekly Options
This entry was posted on Monday, February 22nd, 2021 at 3:05 pm and is filed under Last Minute Strategy, Monthly Options, Stock Option Trading Idea of the Week, Weekly Options.