Unusual Options Activity: Taiwan Semiconductor (TSM)

Semiconductor producer Taiwan Semiconductor (TSM) is up 41 percent over the past year, and held up well amid last week’s market selloff. One trader sees further upside ahead.

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  • That’s based on the February 16, 2024 $80 calls. With 116 days until expiration, 25,019 contracts traded compared to a prior open interest of 157, for a massive 159-fold rise in volume on the trade. The buyer of the calls paid $15.75 to make the bullish bet

    Shares recently traded for about $93, making the option about $13 in-the-money, and leaving just under $3 in time premium. That’s still well under TSM’s 52-week high of $110.69.

    Taiwan Semiconductor is the leading global producer of computer chips. Revenues are down about 10 percent over the past year as the sector has shifted focus to AI chips. However, TSM has a massive 43 percent profit margin, and that looks to improve as more AI chip demand comes online.

    Shares trade at just 16 times forward earnings, a massive discount to many big-name chip designer companies.

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  • Action to take: Investors may like shares here, with an eye to adding more shares on any drop lower. At current prices, TSM also pays a 2 percent dividend yield.

    For traders, the February calls are deep in-the-money, and will likely see mid-double-digit gains in the coming months.

    Traders looking for a more aggressive trade can still use the February strike date, but use an out-of-the-money trade like the $105 calls, which last went for about $2.50.


    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 of the companies mentioned in this article.

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