Pre-Earnings Put Players Blast Texas Instruments Incorporated (TXN)

Texas Instruments Incorporated (NYSE:TXN) will report quarterly earnings after the close on Tuesday, Jan. 24

Jan 23, 2017 at 11:16 AM
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Texas Instruments Incorporated (NASDAQ:TXN) has been a powerhouse on the charts over the past 12 months, boasting a nearly 50% year-over-year gain. More recently, this rally has stalled out in the $75 neighborhood -- home to TXN stock's 16-year high of $75.30, hit on Jan. 13. In fact, shares of the chipmaker came within a dime of this notable milestone earlier today, but were last seen trading fractionally lower at $74.74. This level could continue to be in focus this week, with TXN slated to report earnings after tomorrow's close. And with the stock having a mixed history of post-earnings price moves, options traders have been lining up on both sides of the aisle to place their pre-earnings bets.

daily txn since january 2016

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, TXN's 10-day put/call volume ratio of 4.49 ranks in the elevated 76th percentile of its annual range, meaning puts have been bought to open over calls at an accelerated clip. Over this same time frame, traders at these major exchanges sold to open 5.17 calls for each one they've purchased. Diving deeper, the bulk of this action was centered at the stock's February 75 call and put -- which saw the biggest increases in open interest in the past two weeks -- after one shareholder initiated a collar on Jan. 9, per data from Trade-Alert.

Elsewhere, another group of recent options traders are betting on support to hold near the $72.50 mark over the next four weeks. Specifically, the stock's February 72.50 put is second to the 75 strike for peak put open interest in the front-month series, with 4,596 contracts outstanding. Data from the major options exchanges confirms significant sell-to-open activity here in recent weeks, meaning put writers think the stock will hold above $72.50 through expiration at the close on Friday, Feb. 17. This level coincides with TXN's Jan. 6 intraday low, which was quickly contained by its rising 40-day moving average -- a trendline that served as support during an early December pullback, as well.

That said, the options market is currently pricing in much lower volatility expectations toward puts than calls, as evidenced by TXN's 30-day implied volatility skew of 11.8% -- which ranks below 99% of all comparable readings taken in the past year. Simply stated, near-term puts are more affordably priced at the moment, relative to calls.

Historically speaking, TXN shares have been hot and cold in the wake of the company's quarterly results. In the last eight quarters, the stock has logged a single-session post-earnings loss four times, including a 1.4% drop last October. Overall, Texas Instruments Incorporated (NASDAQ:TXN) has averaged a post-earnings move of 4.2% -- regardless of direction -- in the subsequent session, with the options market pricing in a slightly higher 4.8% swing this time around.

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