{"id":195,"date":"2021-02-04T21:36:00","date_gmt":"2021-02-04T13:36:00","guid":{"rendered":"http:\/\/3.68.57.190\/?p=195"},"modified":"2025-09-29T17:24:10","modified_gmt":"2025-09-29T09:24:10","slug":"tsmc-stock-neutral-options","status":"publish","type":"post","link":"https:\/\/www.slashtraders.com\/en\/blog\/tsmc-stock-neutral-options\/","title":{"rendered":"Profit From TSM No Matter the Stock Price Rises or Falls"},"content":{"rendered":"

Do you regret missing out on the low point of TSMC's stock price?<\/p>\n\n\n\n

Did the recent fluctuation of TSM make you unsure of the future price trends?<\/p>\n\n\n\n

Today I'll share with you how to trade options to increase leverage on TSM trades, and be profitable no matter which direction the price goes.<\/p>\n\n\n\n

We don't talk about business and financial news here, we just analyse the the price charts and let the data tell us how and when to trade TSMC.<\/p>\n\n\n<\/p>\n\n\n\n

Why Do You Want to Invest in TSMC?<\/h2>\n\n\n\n

You might wonder what's the point off trading in TSMC's ADR if you can buy the same stock in Taiwan's stock market?<\/p>\n\n\n\n

Well, the US stock market lets you trade options, not just stocks, so you have the additional flexibility to trade options through TSMC's ADR in the US stock market.<\/p>\n\n\n\n

Why Trade Options?<\/h2>\n\n\n\n

You might also wonder what's the point of trading options<\/a>? Is it more complicated than trading stocks?<\/p>\n\n\n\n

In simple terms, trading stocks is only profitable when you guess the direction of price right, either up or down, so you only have a 50% chance of profitability. The directional change also needs to be large enough to make your profit worthwhile.<\/p>\n\n\n\n

On the other hand, options trading allows you to create a price range that has >50% chance of profitability and be profitable as long as the stock price stays within that range.<\/p>\n\n\n\n\n\n\n\t\n\n\t\n\t
Strategies<\/th>Market direction<\/th>Return on capital<\/th>Probability of profit<\/th>\n<\/tr>\n<\/thead>\n
Stocks<\/td>Either up or down<\/td>Larger fluctuation leads to larger return<\/td>50%<\/td>\n<\/tr>\n
Options<\/td>Create a profitable price range<\/td>Premium\/Buying Power depends on the strike price and time to expiration<\/td>>50%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n\n

You can say trading stocks is suitable for investing long term in valuable companies<\/a> by fundamental analysis, while options trading is suitable for taking advantage of short term trends based on chart analysis.<\/p>\n\n\n\n

TSM Price Trends in the Past Year<\/h2>\n\n\n\n

Based on the price chart of TSM from last year, shown in TD Ameritrade<\/a>, all of the 50-day, 100-day, 150-day, 200-day moving averages were trending upwards. We can tell TSMC is financially strong and competitive like Apple<\/a>.<\/p>\n\n\n<\/p>\n\n\n\n

\"TSM
50-day, 100-day, 150-day and 200-day Moving Averages are all trending upwards.<\/figcaption><\/figure>\n\n\n

<\/p>\n\n\n\n

Based on the gradients of the moving averages, we expect the TSM stock price to increase by $10-15\/month.<\/p>\n\n\n<\/p>\n\n\n\n

\"TSMC
TSMC ADR has been rising at $10-15 per month.<\/figcaption><\/figure>\n\n\n

<\/p>\n\n\n\n

If you were perfectly timed to purchase TSM stocks last March at $42.7\/stock, your shares would have increased by 200% in the past year. But since you are still reading this article, very likely you missed out on the $42 shares, and are wondering if it's too late to trade TSM.<\/p>\n\n\n\n

TSM<\/a> stock prices also experienced both rapid rises and big plunges<\/a> in the past few weeks, leading to great uncertainly in the long term price trends.<\/p>\n\n\n\n

\"TSMC's
TSM stock prices experienced huge fluctuations recently.<\/figcaption><\/figure>\n\n\n\n

How to Predict Stock Price Trends With Implied Volatility (IV)?<\/h2>\n\n\n\n

You can tell from TSM's Implied Volatility (IV)<\/a> that right now IV Percentile is >70%, meaning the IV is larger than 70% of the trading days in the past year, as more people are wary of the recent price changes, and expect the price to move a lot in the near future. So more people are trading options as more people expect changes to the stock price.<\/p>\n\n\n\n

Higher IV correlates to higher options prices (premium), so right now is a good time to be an options seller. As IV Percentile is at a high level, there is also a greater likelihood that IV will reduce in the near future, giving us more opportunity to close the options trade when the premium drops.<\/p>\n\n\n\n

So our goal is to sell options when IV and premium is high, and close the trade when IV and premium is low.<\/p>\n\n\n\n

\"slashtraders<\/a><\/figure>\n\n\n\n

What Are Bollinger Bands?<\/h2>\n\n\n\n

Bollinger Bands are used to monitor changes in IV, and indirectly monitor the expected move of stock prices.<\/p>\n\n\n\n

The Bollinger Bands settings we use are 20-day moving average and +\/-2 standard deviations.<\/p>\n\n\n\n

\"bollinger
Bollinger Bands can be used to monitor IV and thus the expected move of stock prices.<\/figcaption><\/figure>\n\n\n\n

By recalling the normal distribution in high school statistics, we know there is 95.4% probability of the sample staying within +\/-2 standard deviations.<\/p>\n\n\n\n

\"normal
Standard deviation is used to measure the probability of samples within a normal distribution.<\/figcaption><\/figure>\n\n\n\n

So we can use the Bollinger Bands to predict where the stock prices will likely move in the near future, and indirectly monitor the relative levels of IV.<\/p>\n\n\n\n

How to Be Profitable Trading TSM No Matter the Stock Prices Rise or Fall?<\/h2>\n\n\n\n

Since we can predict the range of possible price moves using Bollinger Bands, we can sell options when the premium is higher during a wider band.<\/p>\n\n\n<\/p>\n\n\n\n

\"buy
Use the width of Bollinger Bands to determine when to buy and sell options.<\/figcaption><\/figure>\n\n\n

<\/p>\n\n\n\n

Then we can close the trade when the Bollinger Bands contact in the future.<\/p>\n\n\n\n

Since we can't be sure whether TSM stock prices will rise or fall, we can use the options screener to analyse an Iron Condor<\/a> to define a profitable price range. If the stock prices stay within the price range before the option expires, our trade will be profitable.<\/p>\n\n\n\n\n\n\n\t\n\n\t
Symbol<\/th>Last<\/th>Fair value<\/th>Strangle details<\/th>Iron Condor ROC<\/th>\n<\/tr>\n<\/thead>\n
TSM<\/td>121.52<\/td>108.43<\/td>C140 (0.20)
\nP100 (-0.19)<\/td>		35.14%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n\n
\"Profitability
We can use the Iron Condor strategy to create a probability of profit higher than trading stocks.<\/figcaption><\/figure>\n\n\n\n

We can sell an Iron Condor based on the current chart analysis:<\/p>\n\n\n\n