Bulls triple money in $TSM

Option traders who piled into Taiwan Semiconductor Manufacturing (TSM) in the spring are reaping huge rewards today.

Back on May 31, Market Rebellion’s activity scanners identified the purchase of 3,340 January $40 calls for $2.50 as part of a bullish spread with shares at $38.83. This was clearly a new position, open interest in the strike was 1,391 contracts before the trade occurred.

Those calls are marked at $9.40 today, more than 3.5 times their purchase price. The stock rose 24.98% in the same time period, a large move but nowhere near that of its options on a relative basis.

Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost with the potential for significant leverage. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.

TSM is up 1.38% to $48.52 in midday trading today. Citi analyst Atif Malik said on Oct. 4 that he expects positive quarterly results when the chip maker reports earnings before the market opens on Oct. 17.