My trade idea today is in Taiwan Semiconductor (Ticker: TSM), which got me thinking about what is actually going on with Taiwan, China and President Biden’s recent comments.
After losing control of mainland China in the Chinese Civil War to the communist party in 1949, the Republic of China party fled to the island of Taiwan.
Mainland China became The People’s Republic of China.
Taiwan represented China at the United Nations up until 1971 when it was replaced by the People’s Republic of China.
In the 1980s, relations between the two began to improve when China declared “one country, two systems”.
Taiwan slowly moved toward becoming a democracy and had its first presidential election in 1996.
In 2005, China passed a law saying that it had the right to “use non-peaceful means” against Taiwan if it tried to secede from China.
Taiwan’s current female president, Tsai Ing-wen, leans towards eventual independence from China.
While China’s President Xi Jinping calls for a peaceful unification of China and Taiwan this year and “condemns to history” anyone advocating for an independent Taiwan.
And we have President Biden, twice now in three months, stating that the U.S. will come to Taiwan’s defense if it were attacked.
In 1979 Congress passed The Taiwan Relations Act which states, “The United States will make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability.”
Following Biden’s comments, Beijing has warned Washington “to be cautious with its words and actions on the Taiwan issue and not send the wrong signals to the separatist forces of the Taiwan independence, so as not to seriously damage China-U.S. relations and peace and stability in the Taiwan Strait.”
Seems to me we haven’t heard the end of this story.
TSM closed down two bucks on Friday at $114.23. It has a pretty prominent support line at $107.70:
Friday’s candle formed a bearish engulfing candle, which may be signaling a move lower:
I think TSM is heading back to that support line at $107.70.
If it opens and trades lower today, I will buy the Nov. 19 114-strike puts at an implied volatility of 20.37 and sell the Nov.19 109-strike puts with an IV of 22.36.
- I will pay up to $1.60 for this 5-point spread with 28 days left until expiration.
- If the spread trades down to $1.10, I will sell it and take my losses
- I will take my profits when the spread trades up to $2.60.
- On Wednesday, I bought the Nov. 19 26-strike puts in Haliburton (Ticker: HAL) and I paid $1.11. These have traded up to $1.48 and closed on Friday at $1.13. I still believe HAL will trade below $25 and I will sell these.
- I sold my Alcoa (Ticker: AA) Nov19 53/48 put spread at $3.00 for a 53% profit.
- I let my Norwegian Cruise Line (Ticker: NCLH) calls get away from me and they expired worthless.
Thanks for Reading … See You Next Tuesday!