TSM Options: A Quick Glance at Semiconductors

I wasn’t planning to go near semiconductors this week and my reserve is justified if you consider how shares of Intel (INTC) have traded poorly since releasing third quarter earnings yesterday. Of a truth, the quality of the earnings was not the reason behind the massive plunge, given that Intel delivered decent earnings that beat expectations. In addition, the company gave an optimistic Q4 guidance that beat the consensus estimate on both earnings and revenue.

Hence, I was very surprised when I saw the shares of Taiwan Semiconductor Mfg. (NYSE:TSM) gaining some 3.49% as at 12:46PM EDT to trade around $20.77 per share. Taiwan Semiconductor released its Q3 earnings today and it is obvious that the market is somewhat happy with the company; hence, the gains in sharp contrast to the decline recorded in shares of Intel yesterday and today.

Taiwan Semiconductor with its market cap of $107.05B is principally engaged in the research, development, manufacture and distribution of integrated circuit (IC) related products. The Company operates its businesses in two segments: foundry and other.

Its foundry segment engages in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices, as well as mask making services. Its other segment mainly engages in the research, development, design and provision of system-on-chip (SoC).

Takeaways from Q3 Earnings

Taiwan Semiconductor reported consolidated revenue of NT$209.05 billion, net income of NT$76.34 billion, and diluted earnings per share of NT$2.94 (US$0.49 per ADR unit) for the third quarter ended September 30, 2014.

Year-over-year, third quarter revenue increased 28.6% while net income and diluted EPS both increased 46.9%. Compared to second quarter 2014, third quarter results represent a 14.2% increase in revenue, and a 27.9% increase in net income.

In US dollars, third quarter revenue increased 14.7% from the previous quarter and increased 28.1% year-over-year.

Gross margin for the quarter was 50.5%, operating margin was 40.4%, and net profit margin was 36.5%.

For Q4, the company reports that Revenue is expected to be between NT$217 billion and NT$220 billion;

Gross profit margin is expected to be between 48% and 50%

Operating profit margin is expected to be between 38% and 40%

Breakout or Breakdown


The chart above (with annotations) shows how the shares of Taiwan Semiconductor have traded within the last one year. The stock has a 52-week low of $16.44 and a 52-week high of $23.07; hence, the stock is trading at a 26.33% premium to its 52-week low and at an 11.07% discount to its 52-week high.

You will observe that shares of Taiwan Semiconductor have a support at $19.80 and that they have met resistance at $21. If the support fails to hold, the stock could fall to $19 or as low as $18 where it has previous support levels. On the contrary, a breakout above $21 could see the stock rising to previous highs of $23 where it met resistance and the stock could even attain new highs.

How to Trade TSM Options

The fact that shares of Taiwan Semiconductor have already gained more than 3% in intraday trading lends credence to the fact that the bullish momentum is strong on the stock. In addition, the stock has an RSI of 57.32 to suggest that the buying action is just picking up on the stock.

I am bullish on Taiwan Semiconductor and I am going all the way on the bullish bias on this. I am buying the TSM Jan 2015 22.500 call (TSM150117C00022500) at an asking price of $0.55 to price shares of Taiwan Semiconductor a little below the 52-Week high of $23.07.

Photo: Yuri Yu. Samoilov via photopin cc

— Daily Option Alerts

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