Like it or not, President-elect Donald J. Trump will almost certainly cause a geopolitical paradigm shift. Under Trump 2.0, Taiwan Semiconductor Manufacturing (TSM), which has strong technological capabilities, could bring big profits to its chip foundry business. After all, Trump’s solid policies are giving the company a boost. Because of this, I’m bullish on TSM stock.
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US advantage
President Trump has signaled a return to American primacy and is likely to use economic coercion if necessary. Late last month, the president-elect said on his social media platforms that he plans to impose an additional 10% tariff on all Chinese goods imported into the United States. President Trump then doubled down and threatened to impose 100% tariffs on so-called BRICS countries. Tariff.
Admittedly, this news does not directly benefit TSM stock. However, what it really does is send a powerful message. Basically, the incoming Trump administration will take a tough stance on other countries, even if it causes pain at home. On the global front, this policy approach should take the heat out of Taipei and firmly temper the heat in Beijing. This is a dynamic that benefited Taiwan’s economy during the Trump era.
don’t fight tape
To be fair, geopolitics tends to be confusing, especially at the moment. And even Taiwanese are reportedly concerned about President Trump’s second term. Nevertheless, the United States’ competition with China and other countries is likely to lead to a productive relationship with Taiwan. After all, America does not have a perfect lineup of allies in the Pacific theater. Overall, things should be bullish for TSM stock.
Additionally, the entire technology sector is enjoying significant momentum. There were concerns that leading companies in the artificial intelligence (AI) field, such as Nvidia (NVDA), were overvalued, but recent strong performance has dispelled those persistent concerns. NVDA is likely to reach $250 per share, and this freight train could help support related AI chip stocks such as Taiwan Semiconductor.
In other words, investors would be wise to avoid fighting tape. Yet another example of this proven concept is technical analysis. Specifically, recent moving average indicators (both simple and exponential indicators) rate the TSM stock as a Buy. When both fundamental and technical measures are sending the same message, a high-conviction contrarian theory is generally required to justify a move in the opposite direction.
Taiwanese semiconductor options trading
For confident investors, buying out TSM stock is the easiest approach. However, with an average price target of $232.50, analysts expect an upside of about 16% from current levels. That’s decent, but not mind-blowing. The most optimistic price target is $250, which represents less than 25% upside from the current share price. After a year, such returns may not be appealing to everyone.
But that doesn’t mean investors should ignore TSM stock. Instead, market participants can turn to the options market. By purchasing a bull call spread (a multi-leg option strategy that buys a call option and sells the call at a higher strike price), traders can exercise their bullish stance at a discount. In other words, the credit received from selling the short call partially offsets the debit paid on the long call.
This approach allows investors to consider in-the-money (ITM) calls as part of their strategy. And while it is true that short call strikes limit the maximum possible payout, bull call spreads are typically deployed as short-term speculation. For the ultimate gambler, the ability to purchase multiple expiry options doubles your profits.
real world example
Let’s look at a real-life example that shows the power of call option spreads. With an option chain that expires on January 17, 2025, you can choose from around 60 different spreads. But we don’t just pick one at random. Instead, consider call spreads that minimize the positional and stochastic nature of the risk while simultaneously maximizing the payout.
According to my analysis, the market is giving big profits to the 195/200 calls. In other words, you buy a $195 call and sell a $200 call. The total debit paid, or amount at risk, is $285 for a chance to win $215 (or 75% payout). Note that the average debit required for the TSM call spread on the January 17 option chain is $1,018.
Additionally, the breakeven price for the 195/200 call is $197.85. This is 1.4% below current levels. Additionally, the strike price of the short call is $200, so TSM stock doesn’t necessarily have to go up. Instead, you just need to keep your current location. If your TSM is still recorded at $200 or more by the expiration date, you will get a 75% payout. Sounds ridiculous until you realize that selling a short call significantly reduces the payout on the long (195) call.
Is TSM stock a buy?
Turning to Wall Street, TSM stock has a “Strong Buy” consensus rating based on 5 buys, zero holds, and zero sell ratings. TSM’s average price target of $232.50 implies an upside potential of 15.85%.
Read more analyst reviews on TSM Stock
Conclusion: Use call spreads to increase returns on TSM stock
Taiwan Semiconductor is at a critical juncture, benefiting from both geopolitical tailwinds and strong demand in the high-tech sector. President Trump’s aggressive stance toward China may cement Taiwan’s strategic importance and indirectly strengthen Taiwan’s global standing. Coupled with its role in driving innovations such as AI, TSM remains a cornerstone of the semiconductor market. For investors looking to capitalize on this momentum, option strategies like bull call spreads offer a flexible and efficient approach. By limiting upfront risk while preserving significant upside potential, this strategy aligns with Taiwan Semiconductor’s promising trajectory and offers bullish speculators a disciplined yet rewarding path. Provide.
Disclosure.
