Despite meeting expectations, the financial report led to a stock nosedive, burying numerous option buyers. (Why I discourage option novices from betting on financial reports)

In this article, I'll discuss the pitfalls of
options during TSM's earnings season,
what options beginners should start with,
and my outlook on TSM's future.

For those who bought the stock, calculating from Wednesday's closing price of $139, it dropped to $132, and now in after-hours trading, it's down to $124.

For those who bought Calls, especially those with near-term expiration dates, there was a surge of four to five points before the market opened, making many regret not buying more. However, in the end, most Calls became worthless.

For those who bought Puts, they initially thought they were losing, but it turned out they were right. If they sold immediately after the market opened, the returns were decent. However, for those who didn't sell immediately and watched the price drop again after an hour or two, they realized they could have earned more. Later, as the stock price dropped back down, the Puts rose back to their original prices, leaving many kicking themselves.

Let me give you an example with a Call option expiring on the 19th. I bought it for around $400 on the 17th, and by the 18th, it was basically worthless.

Some might say using this example of a near-term Call option is too extreme. So let's look at another example, expiring around May 3rd, just half a month later.

I bought it for around $600+, but by the 18th, it was down to around $100, resulting in a loss of over $500, almost wiping out 80% of its value.

Out of this $500 loss, the time value decay was only around $10+, which is negligible. About $300 was lost due to the stock dropping over $6 (Delta and Gamma losses). Another $200 was probably due to the collapse of IV.

Before the earnings season, TSMC's IV was at the 99th percentile. The IV collapsed by around 22 points in a single day.

So, for an option expiring on May 3rd with a strike price around $140, if you bet correctly, you would have made $200 less. If you bet wrong, you would have lost $200 more.

Gambling on options tied to earnings reports can be thrilling when you get it right, really thrilling.

But let's be honest with ourselves, what's our success rate when betting on earnings reports, and what's our overall profit or loss?

Personally, I'm not too keen on it. Staying up late to watch and guess is quite exhausting.

This strategy requires some timing skills, but not too much. If I happen to get it wrong, I can always cut my losses. If a trade loses 20%, I'm okay with cutting it off.

If AMD suddenly rallies back to its previous price, and I end up losing a couple of hundred dollars on those Puts, I'll cut my losses and close the position, which I can accept. If it continues to soar past $140, a couple of Calls could earn me a few hundred dollars in just half a month, not a bad return for a weekend treat.

3. Outlook on TSM's Future
After-hours, TSMC dropped to 129.

Of course, trading is closed now, and with low volume in after-hours trading, there's not much to reference. Opinions don't count for much. Mooers should take responsibility for their own accounts.

From a macro perspective, hot topics in 2024 will definitely include AI and semiconductors. The past two or three months have been tough, but this pullback is setting the stage for a stronger rally.

Fundamentally, TSMC's financial report shows it's a solid company. The forward-looking statements provided are quite transparent, and there's no need to be overly pessimistic. Much of what humans create is hype. When investing in stocks, it's wise to choose a hype that seems reasonably justified.

In terms of valuation, using a PE ratio of 15-30, TSMC's median valuation in 2024 is approximately 135, and in 2025, it's around 170.

There's strong support between 113 and 125. Personally, I'm considering buying TSMC shares at this level. Even if it continues to drop, I think I can handle it. Buying at this price, if I lose, so be it. I haven't chased after highs or engaged in speculation. If I lose, I'll accept it.

Feel free to comment if you have any thoughts!