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Is Taiwan Semiconductor (TSM) Ready To Resume Higher?

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This week we are featuring a company that was just added to the Investor’s Business Daily (IBD) Top 50 List.  I hope that it is of interest to you.  The Terry’s Tips’  portfolio that places trades on our selections from the IBD Top 50 List has gained 117.7% so far in 2017.  Terry’s Tips subscribers who have trades placed in their accounts through Auto-Trade or who follow the portfolio on their own are happy campers right now.

Terry

Is Taiwan Semiconductor (TSM) Ready To Resume Higher?

Taiwan Semiconductor has been gaining popularity among investors as the company supplies key components used in the Iphone.  Apple’s smartphone saw sales exceeding 50 million units last quarter.  These analysts weigh in on why there may be further upside ahead for Taiwan Semiconductor’s stock price – 3 Things This Apple Inc. Supplier Wants You to Know and How To Become A Billionaire In One Step: Sell Components To Apple.

The technical indicators point to a healthy uptrend in TSM.  The stock price recently bounced higher from support at $34.42 and has regained the 20-day moving average.  The stock has held above the same moving average on a weekly chart for most of this year.  A rising trend channel has been in play since May last year and the lower line of the channel offers additional support near recent lows.

TSM Chart July 2017

TSM Chart July 2017

*source Tradingview.com

If you concur Taiwan Semiconductor is ready to resume higher, consider this trade which is a bet that the stock will continue to advance, or at least not decline very much over the next four weeks.

Buy To Open TSM 18Aug17 34 Puts (TSM170818P34)
Sell To Open TSM 18Aug17 35 Puts (TSM170818P35) for a credit of $0.21 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when TSM was trading near $36.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

If you use our favorite broker for this trade, tastyworks, your commission on this trade will only be $1 per opening contract ($2 per spread) (and there is no commission on closing trades, only the $.10 clearing fee).  Each contract would then yield $19 and your broker would charge a $100 maintenance fee, making your investment $81 ($100 – $19).  If TSM closes at any price above $35 on August 18, 2017, both options would expire worthless, and your return on the spread would be 23% (299% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates July 14, 2017

IBD Underlying Updates July 14, 2017

IBD Underlying Updates July 14, 2017

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  The Terry’s Tips portfolio which places spreads like the above one has gained 80% in the first six months of 2017 in spite of incurring some losses on some of the spreads placed.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

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