Unusual Put Options in Taiwan Semiconductor Stock Show Investors are Bullish

An unusually large in-the-money (ITM) put option tranche expiring over the next month in Taiwan Semiconductor (TSM), the Taiwan chip maker, shows investors are still bullish on TSM ADRs (American Depository Receipts).

TSM is at $388.85 in midday trading today, off its recent peak of $419.50 on May 6. This is after the company released stellar earnings on April 16, and reported higher figures in its April results on May 8.

The results on May 8 show that TSM's April revenue (in NT$) was up 17.5% YoY but down 1.1% on a month/month basis. However, for the four months of January through April its revenue is up 29.9%.

That could have sparked today's unusual put option volume as seen in a Barchart report. 

The Unusual Stock Options Activity Report shows that over 12,000 puts have traded at the $395.00 put option strike price. This is for the period ending June 12, 2026, which is 31 days from now.

It shows that this put option trading volume is 100 times the prior number of contracts outstanding. That implies that some major institutions are piling into these puts.

But note that the puts are already "in-the-money" (ITM). That means that the put strike price ($395) is higher than the trading price ($388.85).

Buyers View. So, from a buyer's standpoint, this is fantastic. They already know that the put option has intrinsic value (i.e., $395.00-$388.85, or $6.15). The problem, though, is that they have to pay way over that value, $24.07 at the midpoint.

In other words, a put buyer has to believe that TSM will fall over $17.92 or -4.6% to $370.93 to breakeven:

  $395-$24.07 = $370.93

  $370.93 / $388.85 = -4.608%

That means they expect TSM to retrace a lot of its recent move up before buying the put is profitable.

Sellers View. The more likely initiators of these trades are probably the sellers of these puts. They gain an immediate income of $24.07 based on an obligation to purchase TSM at $395.00:

  $24.07 / $395.00 = 0.06094 = 6.09% yield

However, their breakeven buy-in point is $395-$24.07 = $370.93. That's 4.6% below today's price and provides an attractive buy-in point. 

Moreover, if TSM rises closer to the $395.00 strike price, the short put seller can buy back their obligation at a lower premium.

So, where is TSM headed over the next month?

Underlying Value in TSM Stock

Taiwan Semiconductor is at the epicenter of the AI revolution. Its chips are used in the massive data center capex push by AI inference scalers for their models and to train AI agents.

As a result, for the next several years, its revenue is forecast to rise significantly. Moreover, its profitability is growing. For example, in Q1 its net profit margin was 50.5% vs. 48.3% in Q4 and 43.1% a year ago.

Moreover, its free cash flow margins are high, albeit lower than a year ago. It generated a 30.7% FCF margin in Q1, according to Stock Analysis, in NT$, vs. 35.24% in Q4, and 35.12% a year ago.

In addition, its trailing 12-month (TTM) FCF margin was 25.73% vs. 26.32% in Q4 and 28.97% a year ago. Despite this lower FCF margin, due to higher revenue forecasts, its FCF should continue to rise.

For example, analysts now project $164.38 billion in revenue this year and $207.06 billion next year. This implies a next 12-month (NTM) revenue forecast of $185.72 billion.

So, assuming a 25.7% FCF margin, its FCF could rise to $47.7 billion, up from $31.9 billion in 2025 (i.e., NT$1,002b FCF/31.41 NT$ per $), or 49.5% higher.

Price Targets for TSM

As a result, its valuation could be significantly higher.

For example, TSM today has a market cap of $2.019 trillion, according to Yahoo! Finance. That means its TTM FCF of $33.6 billion in Q1 represents a FCF yield 1.66%.

So, applying this means that TSM could be worth $2,874 billion over the next 12 months (i.e., $47.7b FCF / 0.0166). That is 42.3% higher than today's market cap.

As a result, TSM's fair value is 42.3% higher or $553 per share (i.e., $388.85 x 1.423). However, other analysts' price targets (PTs) are lower. For example, Yahoo! Finance's survey price target is $463.45 and Barchart's is $444.38, and AnaChart's is $456.52.

This shows that some investors may believe TSM is worth more, but others are not as ebullient on the stock. That could explain the huge volume in TSM's in-the-money (ITM) put option volume today.