One week before TSMC's earnings report, someone spent a million dollars buying $460 call options.

TSMC is about to release its earnings report. The stock price basically didn't move last night, but there was a noteworthy option trade in the market — at 12:33 ET (Beijing 7/10 00:33), someone bought 600 calls expiring on 7/31 with a $460 strike price in one go, putting in $1.02 million.

$460 is about 5% away from the current price — not particularly out-of-the-money — and the 7/31 expiration just covers the earnings report on 7/16. This is very likely a bet on the earnings — gambling that TSMC's upcoming report can push the stock price above $460. The news flow is indeed positive: TSMC is leading price hikes, Samsung is following suit, Meta's chips are rumored to be produced at TSMC, and 2nm server processors have already been released. Its capacity is basically in a "bottleneck position with no one able to replace it."

However, TSMC has seen significant volatility over the past two weeks, dropping from $477 at the end of June to $432 on 7/7, only recovering slightly to $437 in the last couple of days. Buying out-of-the-money calls a week before earnings is a bet on whether the report will deliver — if it does, delta and IV will work in your favor; if not, it's a double whammy of IV crush and a pullback.

A more conservative approach is to wait for the report to see if it delivers, or use nearer in-the-money calls to increase the odds of success. If you really want to hold this out-of-the-money bet, you can only treat it as a lottery ticket — the cost per contract is about $1,700, and if $460 isn't reached, it goes to zero; if it can't break above $460 after the report, it's time to exit. The breakeven point is around $477 (strike price plus premium), meaning the earnings report needs to deliver an upward gap of more than 9% to actually make money.