MARKET SNAPSHOT

🕒 Market Overview: China silently removes tariffs on US logic chips despite public hardline stance.

🔄 Sector Insight: Semiconductor stocks showing call-favored positioning with 2:1 call-to-put ratio.

💰 Today's Trade Idea: Bull Call Spread on TSM captures potential upside from trade tension easing.

MARKET BREAKDOWN

Macro Lens – Big Picture Market Forces

Markets are navigating a complex landscape as China makes stealth moves in the ongoing trade war. Despite public denials of negotiations, Beijing has quietly eliminated retaliatory tariffs on select US semiconductor imports. This action-rhetoric disconnect has calmed volatility measures, with the VIX settling lower after initial fluctuations.

The unprecedented scale of recent tariffs (US at 145%, China at 125%) makes this behind-the-scenes adjustment particularly significant. This pragmatic approach suggests room for compromise despite heated public statements, potentially reducing supply chain concerns that have weighed on markets.

Sector and Stock Watch – Identifying Key Movers

The semiconductor sector stands at the epicenter of this developing story. China's selective tariff elimination targets logic chips while maintaining duties on memory chips, revealing a strategic calculation based on technological dependencies.

Taiwan Semiconductor (TSM), the world's third-largest chip manufacturer by market cap, has experienced significant volatility in this environment. After correcting over 40% from January highs to April lows, the stock has begun recovering but remains below the midpoint of its 2025 trading range.

The options market is signaling optimism with a 2:1 ratio of calls to puts, suggesting traders are positioning for potential upside despite mixed messaging from official channels. This information asymmetry creates opportunities for traders who can separate market reality from political rhetoric.

Trading Strategy in Focus – How to Play the Market

The contradiction between China's public stance and private actions creates an environment where directional options strategies can thrive. With reduced volatility following these targeted concessions, vertical spreads offer defined risk exposure to potentially significant moves.

For traders looking to capitalize on improving US-China trade relations, focus on companies positioned at critical junctures in the evolving semiconductor supply chain. TSM's commitment to US manufacturing and potential benefits from trade tension reduction make it particularly compelling.

Timing considerations are crucial, as any official confirmation of these tariff reductions could trigger substantial directional moves. Positioning ahead of potential announcements with defined-risk strategies allows traders to capitalize on this developing situation.

SMART TRADE IDEA

Vertical Bull Call Spread on TSM

Trade Setup:

• Buy 170 Call / Sell 180 Call, June 20, 2025 expiration

Entry Price and Risk Reward:

• Cost: $3.30

• Max Profit: $6.70

• Breakeven: $173.30

Management Plan:

• Exit at 50 percent loss, roll up if price reaches $170-$175

Open This Trade Instantly with Trade Link on Tradier Brokerage!

NOTE: Remember, options trading involves substantial risk and is not suitable for all investors. Consider your investment objectives, financial resources, and experience level before implementing this or any options strategy.

DISCLOSURE: Trade recommendations may have changed since publication. Evaluate current market prices and risk/reward before acting. Trading involves significant risk and is not suitable for everyone. This is not personalized investment advice. Past performance doesn't guarantee future results. Publisher and contributors may hold positions in recommended securities. Readers assume full responsibility for their trading decisions. Consult a financial professional before investing.

The semiconductor sector is clearly in the crosshairs of the ongoing trade standoff between the U.S. and China. While the Trump administration wants to see the lion's share of chip manufacturing move within the U.S. borders for national security purposes, Asia remains a critical manufacturing region for chips and technological products. Taiwan Semiconductor (TSM) is a global leader in chip production.

The long-term monthly TSM chart shows a significant correction from the January 2025 $226.40 per share high to the most recent April 2025 $134.25 low.

While TSM plunged over 40%, the stock held just above the critical technical support at the August 2024 $133.57 low. At around $163, TSM recovered but remains below the midpoint of the 2025 trading range. TSM's investment pledge to the Trump administration for U.S. chip production and the potential for negotiated settlements to the tariff issue could boost TSM shares back toward the highs. However, TSM faces significant geopolitical risks, given China's reunification plans for Taiwan. The importance of semiconductors and TSM's market position makes the June 20, 2025, $170-$180 vertical bull call spread attractive.

The chart shows that the $170 $180 TSM vertical bull call spread for the June 20, 2025 expiration is trading at the $3.30 level, making total risk $330 per spread, and the potential profit $670 per spread, a better than 1:2 risk-reward profile with TSM trading at the $163.20 per share level.

TSM is a volatile stock. Good news on the trade front could push the shares higher from the current level.

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