Taiwan Semiconductor (TSM) is showing unusually heavy call option volume today. Investors are earning high covered call yields, over 3.4% for the next month, by selling out-of-the-money TSM calls.
TSM is down over 1.9% today to $391.36 in midday trading, along with other semiconductor stocks. This is due to news in the sector, as reported by CNBC, that a Chinese company is catching up with the latest technology in the chip-making process.
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TSM stock - last 3 months - Barchart - July 28, 2026 TSM is now at a 3-month low point as the Barchart chart above shows.
However, the company recently reported strong earnings and cash flow. I discussed this last week in a July 17 Barchart article, “Taiwan Semiconductor Generates Strong FCF - But TSM Stock is Down and Value Investors Love It.”
I showed that TSM stock could be worth $516.30 per share, or over 31.7% higher than today's price. That is based on analysts' revenue forecasts and its strong free cash flow (FCF) margin.
Moreover, in the last week alone, the average price target from 19 analysts surveyed by Yahoo! Finance has risen from $498.24 to $537.43 today. Similarly, Barchart's PT is up from $463.92 to $499.31 today.
That implies that today's huge, unusual call options volume is likely initiated by covered call sellers.
Huge, Unusual Call Options Volume in TSM Stock
This can be seen in Barchart's Unusual Stock Options Activity Report today. It shows that over 17,000 call options have traded at the $425.00 call options strike price contract. It expires on Sept. 4, just over a month (38 days) from today.
That volume is over 104 times the prior number of contracts previously outstanding at $425.00. In other words, sellers have likely initiated this massive call option trading, taking advantage of the high midpoint premiums.
TSM calls expiring Sept. 4 - Barchart Unusual Stock Options Activity Report - July 28, 2026 The table above from Barchart's report shows that the premium ranges from $12.60 to $14.25, or a midpoint of $13.43 per contract.
That works out to a one-month yield of over 3.4%: $13.43 / $391.36 = 0.0343 = 3.43%.
In other words, it's the same as selling TSM for $425 +$13.43, or $438.43. That is 12% over today's price, assuming TSM rises to $425.00 by Sept. 4.
This looks like a way for existing shareholders to collect extra income, as well as have a way of selling at a premium. Moreover, if TSM falls further, the extra income gives downside protection for these existing TSM shareholders.
As a result, this looks like an attractive way for existing investors to hedge their bets.
Shorting OTM TSM Puts Also Works
In my previous Barchart article on TSM last week, I discussed shorting out-of-the-money (OTM) puts to earn extra income. I discussed shorting the $370 strike price put expiring Aug. 21 for a $9.80 premium. That provided a one-month yield of 2.65% (i.e., $9.80/$370.00).
Today, that premium has risen to $11.08, so there is a potential unrealized loss for any investor who did this (i.e., $9.80-$11.08, or -$1.28). But that is only if the investor decides to buy back this put, even though it is still out-of-the-money (i.e., below the trading price).
In other words, TSMe stock still has to fall by over $21 to $370.00 before the obligation to buy 100 shares at $370.00 is assigned to the account.
Moreover, it now makes sense to average down. For example, the $11.08 premium represents a yield of 3.0% (i.e., $11.08/$370.00 = 0.02995) for the next 24 days.
That is a very attractive way to earn extra income if you are a TSM shareholder. For example, it only requires $37,000 in collateral to earn $1,108 immediately.
And even if TSM falls to $370 by Aug. 21, the breakeven purchase price is $370.00 - $11.08 = $358.92. That's 8.3% lower than today's price.
The bottom line is that shorting out-of-the-money calls and puts is an attractive way to play TSM today.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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