Chip bulls bag gains in $TSM

Option traders are bagging fast profits in Taiwan Semiconductor Manufacturing (TSM) today after its earnings report.

Just before yesterday’s close, Market Rebellion’s Unusual Activity Scanners identified the purchase of 4,000 Weekly $52 calls, expiring on Apr. 24, for $0.68 to $0.73 with shares at $49.48. This was clearly fresh buying, as volume was well above the previous open interest of 45 contracts.

Those calls have traded for as much as $1.83 this morning, more than double their purchase prices. The stock rose 6.93% in the same time period, showing how options can far outperform their underlying shares.

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 was last trading for $52.24, up 5.2% on the session. The chip maker beat earnings and revenue expectations in its Q1 earnings report.