Taiwan Semiconductor may have seen terrific gains this past year, but some traders are betting that the stock's run is over.
The Apple supplier is up 10 percent so far in 2015. Yet on Thursday, traders placed bearish positions that would start to make money if those gains are nearly wiped out.
Thursday's put volume in the stock was twice its daily average. In particular, a lot of buying took place in the July-expiry 25 puts. Over 6,000 traded at an average price of $1.80 each. The total trade represents over a million dollar bet that the stock will give back all of this year's gains in the next three months.
"That essentially means that you are giving up all of this year's gains to hedge for 120 days," explained CNBC contributor Mike Khouw. "So if they are hedging anything, it isn't this year's gains that they are concerned about and they are looking for protection that kicks in almost immediately."
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The bearish sentiment wasn't limited to that single large block. Throughout the course of the day, puts outpaced calls by a ratio of 15 to 1. A put option is a bearish bet giving its purchasers the right to sell a stock at a given price on a future date whereas a call option is a bullish bet giving its holders the right to buy a stock.
Interestingly, the massive put-buying on Thursday comes just two days after a report by Cowen and Co. analyst Timothy Arcuri speculating that Taiwan Semi will supply most of Apple's next generation of processor chips, the A9. A month ago, it was reported on Re/Code that rival Samsung would be the one making the chip.
"This is an interesting name because it has largely confounded the Street, whose average price target is below the current stock price," notes Khouw. "But the bearish sentiment has not been reflected in the price action."
Data compiled by Thomson/First Call show Taiwan Semi's average analyst price target is $24.04 per share, 62 cents below Thursday's closing price of $24.66. The stock has been riding high for quite some time; it is up 33 percent in the last 12 months and has doubled in price in the past four years.
