Options Corner: 'Liberation Day' Panic Flashes A Contrarian Signal For Tower Semiconductor

Former White House communications director Anthony Scaramucci probably said it the best: "Liberation Day is Liquidation Day." Describing the sweeping wave of new tariffs announced on Wednesday by President Donald Trump, the reciprocal levies are designed to help American workers and revive U.S. manufacturing.

Unfortunately, the move is creating a ripple effect on pricing implications, badly hurting technology specialists, including integrated circuits manufacturer Tower Semiconductor Ltd TSEM.

At first glance, Tower doesn't particularly stand out as a tariff-vulnerable candidate. Although based in Israel, the U.S. has a close relationship with the country. According to the New York Times, the two allies have had a free-trade agreement since 1985. However, the core issue centers on the stability of the global supply chain.

Modern businesses — especially within the advanced semiconductor industry — require specialized parts and materials that are secured months in advance. Further, the research and development of advanced components can take years, requiring significant investments and partnerships across multiple entities. Plus, with so much of the tech ecosystem dependent on Asia, Trump's tariffs darken forward visibility.

More broadly, TSEM stock is also struggling from competitive threats. Earlier this year, China's DeepSeek rattled the tech sector, delivering an artificial intelligence model that could compete with western counterparts at a much lower cost. Such efficiencies potentially impinge upon Tower's business due to less demand for high-performance chips or even a potential realignment of supply chains.

TSEM Stock Enjoys Credibility as a Bounce-Back Prospect

Although the environment for TSEM stock appears incredibly dour, students of market history will look on the red ink with anticipation, not dread. More often than not, the ominous clouds have represented an opportunity to acquire shares.

First, Benchmark analyst Cody Acree stated that TSEM stock was one of the names to pick up following January's DeepSeek-inspired rout. The expert noted the company's resilience and growth potential, specifically highlighting its leadership in radio frequency (RF) infrastructure technologies. This innovation is especially critical to applications involving the Industrial Internet of Things (IIoT), Tower's key specialty.

Second, while TSEM stock printed the dreaded death cross earlier this week, this technical pattern — where the 50-day moving average slips below the 200 DMA — has historically served as a contrarian indicator. Between August 2015 and October 2022, there have been seven death crosses, with five of the incidences (or 71.4%) resolving to the upside one month later.

To be sure, the sample size is very small, so the implication needs to be taken with a grain of salt. Nevertheless, it's remarkable that even one year removed from the death cross flashing, the contrarian success ratio of 71.4% still stands.

Third, TSEM stock is currently down more than 11% over the trailing five sessions. Such extreme volatility is rare. Looking back over the past six years, there have only been four weeks where TSEM lost double-digit percentage points. By the fourth week following such an intense downside, the security has swung up three times, suggesting that investors recognize the deep value play.

Rolling the Dice on Tower Semiconductor

For those that want to go for the immediate gratification route, the nearest expiration date for TSEM stock options is April 17. Here, the 30/35 bull call spread would arguably be the most aggressive trade that has a realistic chance of being successful.

The above transaction involves buying the $30 call (at a time-of-writing ask) of $330 and simultaneously selling the $35 call (at a bid of $45), resulting in a net cash outlay of $285. Should TSEM stock hit or exceed the short strike price at expiration, the maximum reward is the difference between the strike prices (multiplied by 100 shares) minus the cash outlay or $215. This translates to a payout of 75.44%.

For speculators who want to play the death cross, they may consider buying the 35/37 bull spread for the options chain expiring May 16. This options chain provides more time for the market to bake in the negativity before hopefully rising. In the ensuing bounce back, strong double-digit-percentage moves are not unusual; hence, the ambitious but realistic $37 target.

Those who want to roll the dice on the above trade will need to spend $65. On the plus side, if TSEM stock cooperates, the maximum reward is $135 or a payout of nearly 208%.

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