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Texas Instruments (TXN) Dividend News Forces Bears Out

Investors seek exit from TXN March 33 put

by 2/22/2013 12:01 PM
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Texas Instruments Incorporated (NASDAQ:TXN - 33.96) announced yesterday that it was boosting its dividend by 33% and expanding its stock buyback program by $5 billion. And this morning, the option pits are jumping on the news, but surprisingly, puts are leading the way on the heels of this potentially positive news for the stock. Nearly 7,400 bearish contracts have changed hands, nearly three times the normal volume at this time of day.

The March 33 put is the most active strike on the board so far, with nearly 3,500 contracts crossing. And it appears that at least some of these trades are investors selling to close the positions before the stock rises even further on the news. Most of these traded at the bid price, and today's volume is less than open interest. Some of those active on the put today may have bought to open these same options just two days ago, when open interest expanded by 1,800 contracts. On Feb. 20, the puts closed at $0.67. Today -- with the underlying stock gaining more than 4% -- these puts have traded at a volume-weighted average price (VWAP) of $0.42.

TXN has been in the bears' crosshairs recently, however, at least as far as options traders are concerned. The stock's Schaeffer's put/call open interest ratio (SOIR) is 1.30, ranking in the top 2% of readings taken in the last year -- indicating a very elevated bearish stance on the stock. In addition, the equity's 50-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is at 1.54, showing a proclivity for puts. And that stands in the 92nd percentile of readings in the last 12 months, again indicating heavy levels of pessimism recently. And finally, short interest has spiked 13% over the past two weeks as even more bears place their bets.

But technically, TXN may be ready for a push further up the charts. The stock has already climbed nearly 10% on the year, and has been on a steady stair-step climb since late October. It is also trading at a premium to analysts' 12-month target price of $32.56. So TXN could not only jump on the dividend/buyback news, but price-target hikes or rating increases could provide further tailwinds for the stock (out of the 34 analysts covering TXN, 22 have "hold" or lower ratings, including four "strong sells").


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