Buy cheap NKY calls into the year-end; TSMC earnings upside after strong sales; TSMC capex basket plays

This report is J.P. Morgan's Asia Pacific Equity Derivatives Strategy. On Japan, we recommend using relatively cheap Nikkei (NKY) upside optionality to participate in a potential AI-led breakout: implied volatility has reset to more manageable levels, calls provide convex participation, and dealers moving back into short-gamma territory could support spot-up/vol-up dynamics. AI-linked stocks account for ~50% of NKY weight, and foreign positioning leaves room for further re-risking, though spot near highs, narrow leadership, and choppier mid-term seasonality point to a more uneven path. We recommend buying Jan-27 NKY 110% calls @1.65%, or cheaper NKY-up/USDJPY-down hybrids (58% discount vs. vanilla call). On TSMC, September revenue was NT$512bn (+55% YoY) with 3Q26 sales above the high end of guidance, but the October 15 earnings release remains the key confirmation point;