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Earnings News Tempts Texas Instruments Incorporated (TXN) Bears

TXN put trading was up on Tuesday, fueled by a large block trade

by 6/12/2013 9:54 AM
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After predicting lower-than-anticipated second-quarter earnings yesterday, Texas Instruments Incorporated (NASDAQ:TXN) welcomed a mob of put traders. Specifically, 13,000 puts changed hands, which was more than three times the normal daily volume.

Leading the way was TXN's July 35 put, where over 4,500 contracts crossed the tape. The supermajority of the transactions occurred in a single block, when one speculator traded 4,000 of the near-the-money puts at the ask price of $0.87 -- suggesting he purchased them. Open interest increased by 4,175 positions overnight, indicating the puts were bought specifically to open.

Long story short, yesterday's block trader will profit if the shares of Texas Instruments fall to $34.13 (strike price less the premium paid) by July 19, when back-month options expire. On Tuesday, the stock closed at $35.26, so it's a fairly modest drop. Based on delta of negative 0.45, or 45%, the trade has nearly a 1-in-2 chance of finishing in the money. But no matter what happens, the most the bearish speculator can lose is the premium paid.

Yesterday's put buyer was walking in step with his TXN options trading cohorts. The stock boasts a 50-day put/call volume ratio of 3.26, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), with puts bought to open outnumbering calls by a margin greater than 3-to-1 over the past 10 weeks. Statistically, that rate of put buying has been exceeded only 8% of the time in the past year.

Technically, Texas Instruments Incorporated (NASDAQ:TXN) has performed about as well as the S&P 500 Index (SPX). In 2013, the shares have added close to 15%, and over the past 52 weeks, they've gained over 25%. Since late April, however, they've been consolidating in the $35 to $37 range.


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