Semiconductor manufacturer Taiwan Semiconductor (TSM) is up over 50% in the past year, even after shares have pulled back in recent days. One trader sees a further drop ahead in the coming weeks.
That’s based on the May 24 $133 puts. With 31 days until expiration, 4,724 contracts traded compared to a prior open interest of 106, for a 45-fold rise in volume on the trade. The buyer of the puts paid $7.90 to make the bearish bet.
Taiwan Semiconductor shares recently traded for about $127, meaning the option is already over $5.00 in-the-money. Shares have been steadily declining from over $140 in the past two weeks.
As with many semiconductor companies, investors are looking past current earnings towards future AI-related offerings. Revenue rose 17% last year, and earnings grew by just 9%.
TSM is working on increasing its production facilities, including a new campus in the United States, which could fuel future growth once it’s operational.
Action to take: Shares are nearing oversold levels but aren’t quite there yet. The low $130 range or under would be an ideal price point to start building a position in shares. TSM also pays a 1.5% dividend.
For traders, the May 24 $133 puts don’t have much time to play out, but they’re already deeply in-the-money and could see low-double-digit gains in the coming days.
More aggressive traders may want to look further out-of-the-money.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.