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Goldman Sachs Reveals Zero-Cost Strategy for TSMC Arbitrage

by Team Lumida
June 20, 2024
in AI
Reading Time: 3 mins read
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Goldman’s Big Bet on Wealth Lending: Doubling Down on the Ultra-Rich

Source: Goldman Sachs

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Key Takeaways

  1. Goldman Sachs proposes a zero-cost put strategy for TSMC ADRs.
  2. TSMC ADRs surged due to AI frenzy, creating a premium over Taiwan shares.
  3. Investors can cap losses while betting on ADR premium shrinkage.

What Happened?

Goldman Sachs has identified an alternative to the crowded arbitrage trade involving Taiwan Semiconductor Manufacturing Co. (TSMC). The traditional strategy involves buying TSMC’s lower-valued Taipei shares and shorting the U.S. stock, hoping for price convergence. Due to the artificial intelligence (AI) frenzy in the U.S., TSMC’s American Depositary Receipts (ADRs) have surged, creating a premium of 20% to 25% over the Taiwan shares.

Goldman Sachs suggests a zero-cost options strategy to capitalize on this premium. The bank recommends buying puts on the U.S. ticker and selling puts on the Taiwan shares, thus capping potential losses if markets move unfavorably.

Why It Matters?

The AI-driven surge in TSMC’s ADRs has created a significant premium over its Taiwan shares, making traditional arbitrage strategies increasingly risky and less profitable. Goldman Sachs’ zero-cost put strategy offers investors a way to capitalize on this premium while limiting downside risk.

This approach is particularly appealing given the high implied volatility of TSMC ADRs, which have surged 73% this year. The strategy allows investors to potentially profit from the anticipated shrinkage of the ADR premium without exposing themselves to significant losses in case the AI momentum continues to push the ADRs higher.

What’s Next?

Investors should closely monitor the performance of TSMC ADRs and Taiwan shares to identify the optimal timing for implementing Goldman’s put strategy. The suggested trades include buying September 98% puts on the U.S. ticker and selling at-the-money puts on the Taiwan shares.

Alternatively, investors can buy ADRs’ September 97.3% puts while selling 100% puts on the Taiwan shares denominated in U.S. dollars. Watch for any changes in the AI sector that could further impact TSMC’s ADR premium. The rising demand for options on TSMC’s ADRs and the increased implied volatility suggest that this strategy could become more popular among investors seeking to navigate the current market dynamics.

Source: Bloomberg
Tags: AI FrenzyArbitrageGoldman SachsOptions StrategyTSMC
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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018