Option Bulls Should Keep an Eye On Texas Instruments Incorporated (TXN)

Texas Instruments Incorporated (NASDAQ:TXN) has put in a solid performance on the charts, yet the stock is surrounded by skeptics in and out of the options arena

Nov 8, 2016 at 11:16 AM
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Texas Instruments Incorporated (NASDAQ:TXN) has put in a solid technical performance in 2016, up nearly 27% at $69.57. More recently, TXN stock has been trading in the $67.50-$72.50 range, since the shares gapped to a 16-year high of $72.58 in late July. What's more, following several successful bounces off the lower end of this range -- which coincides with a 61.8% Fibonacci retracement of TXN's late-June lows and July highs -- an unwinding of skepticism both in and out of the options pits could help propel shares of the chipmaker back into multi-year-high territory.

TXN daily since january 2016

In the options pits, for instance, TXN's Schaeffer's put/call open interest ratio (SOIR) of 1.36 ranks in the 89th annual percentile. Simply stated, options traders are more put-skewed than usual toward strikes expiring in three months or less. While this metric is skewed by the 11,185 contracts currently open at TXN's January 2017 50-strike put -- the stock's top open interest position -- there are lofty accumulations of shorter-term open interest at the underfoot 65- and 67.50-strike puts. This could reinforce technical support for TXN, as the hedges related to these bets unwind by the respective expiration dates.

TXN open interest configuration

There's ample room for TXN to encounter contrarian tailwinds outside of the options arena, as well. Although short interest declined 7.2% in the most recent reporting period, more than 20 million TXN shares are sold short. It would take almost a week to cover these remaining bearish bets, at the equity's average pace of trading. A continued capitulation from short sellers could translate into additional gains for the shares.

Additionally, analysts have been slow to respond to TXN's uptrend. Of the 23 brokerages covering the shares, 15 maintain a "hold" or worse rating. Plus, the average 12-month price target of $74.34 stands at a slim 7% premium to the security's current perch. A round of upgrades and/or price-target hikes could lure a fresh batch of buyers to the table.

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