AMD’s CEO, Lisa Su, has acknowledged that semiconductor chips made at TSMC’s new Arizona facilities will cost more—5% to 20% higher than those produced in Taiwan. This difference in price is due to variations in labor, infrastructure, and supply chains. Building these Arizona facilities is part of a larger effort to boost domestic chip manufacturing in the U.S. The goal is to enhance national security and improve supply chain resilience. However, this cost difference highlights the challenges of relocating advanced semiconductor production back to the U.S. Su did not confirm whether AMD would pass these costs on to consumers, but she emphasized their commitment to a diverse global supply chain, which includes U.S. sourcing. She also noted the benefits of having a reliable supply chain with chips produced domestically. For derivative traders, the most important takeaway from Su’s comments is the increased uncertainty about future profit margins. The acknowledged cost premium adds a new factor that could lead to speculation and price fluctuations in the coming months. We should prepare for larger price movements than the market currently anticipates. As AMD recently reported a non-GAAP gross margin of 52%, the introduction of these higher-cost chips from Arizona, although initially a small part of total supply, will draw close attention. Traders will be particularly focused on any guidance that could suggest this could impact profitability. This is likely to be a major driver for future stock fluctuations. However, these effects won’t be felt immediately. Reports indicate that TSMC’s Arizona production is delayed until 2025, with a second facility not expected until 2027 or later. This means cost pressures will be a medium-term issue, allowing implied volatility on shorter-dated options to be potentially undervalued. We must also consider the U.S. government’s financial support in dealing with these higher costs. TSMC has received $6.6 billion in grants and up to $5 billion in loans through the CHIPS Act to help offset these expenses. This support could soften the financial impact on companies like AMD. Intel is a competitor to watch closely, as it is also establishing domestic manufacturing with government assistance. Traders will compare the total costs and efficiency of Intel’s U.S. facilities with AMD’s Arizona options. A cost advantage for Intel could lead to trades focused on the relative performance of the two stocks. Historically, the semiconductor industry shows high volatility, which makes options-based strategies appealing. For example, the VanEck Semiconductor ETF (SMH) has a 5-year monthly standard deviation exceeding 8%, compared to about 5% for the S&P 500. This suggests that significant, news-driven price changes are likely. Thus, traders should think about buying options that could benefit from a large price movement in either direction, such as straddles or strangles, on AMD. The conflicting narratives of supply chain security and rising costs create an ideal setup for a substantial price adjustment. These strategies would capitalize on the uncertainty highlighted by the conversation with Ludlow.

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