Price Forecast:

Bullish Case: TSM shows robust fundamentals with high historical returns and significant AI demand. The recent backwardation in the volatility structure suggests potential for price increases as market conditions improve, particularly around upcoming earnings reports.

Bearish Case: Market uncertainty and geopolitical tensions continue to pose significant risks for TSM, with high implied volatility indicating apprehension. Any production disruptions, especially surrounding facility issues, could severely impact stock performance.

Potential Outcomes:

• 1. 50%: Continued growth bolstered by high demand in AI and semiconductor sectors (historically supported by robust earnings).
• 2. 30%: Supply chain disruptions due to geopolitical tensions, affecting production capacity.
• 3. 20%: Increased volatility driven by macroeconomic factors and investor sentiment leading to potential sell-offs.

Trading Oracle: Considering current market dynamics, a bullish strategy using a call debit spread (190/195) captures upside potential while managing risk, leveraging positive implied volatility metrics. Focus on near-term expirations to capitalize on earnings and macro developments. Adjust positions post-earnings for optimal returns.

December 18, 2024