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Option Traders Cast a Wary Eye Toward Texas Instruments

TXN bears are buying soon-to-expire put options

by 1/15/2013 9:10 AM
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Despite emerging as a broad-market standout of late, Texas Instruments Incorporated (NASDAQ:TXN - 32.34) remains plagued by pessimism -- especially in the options pits. During the past two weeks, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open nearly three puts for every call. In fact, the stock's 10-day put/call volume ratio of 2.72 stands 7 percentage points from a 52-week peak, suggesting option players are initiating pessimistic positions at a near annual-high clip.

Echoing that trend, TXN saw roughly 8,900 puts change hands on Monday -- a mark-up of 45% to its average single-session put volume, and nearly double the number of TXN calls exchanged. Most popular was the at-the-money January 2013 32-strike put, which saw more than 7,600 contracts exchanged. The majority of the puts traded at the ask price, and open interest shot higher overnight, confirming our suspicions of buy-to-open activity.

More specifically, the puts crossed at a volume-weighted average price (VWAP) of $0.20, meaning the buyers will make money if TXN breaches the $31.80 level (strike minus VWAP) by the closing bell on Friday, when January-dated options expire. However, even if TXN resumes its ascent, the most the traders can lose is capped at the initial premium paid.

Broadening our sentiment scope, the recent affinity for bearish bets is evident in the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.01, which stands higher than 74% of all other readings of the past year. In other words, short-term options traders are more put-heavy than usual right now.

In the soon-to-expire front-month series of options, the aforementioned 32 strike is now home to peak put open interest of more than 14,200 contracts. In the near term, this abundance of pessimistic positions could translate into an options-related foothold for TXN.

Furthermore, TXN could have an ally in its 10-day moving average, which is ascending into the $32 neighborhood. This trendline, along with its 20-day counterpart, has lifted the shares about 16.2% since late October.

Daily Chart of TXN since October 2012 With 10-Day and 20-Day Moving Averages


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