Texas Instruments Stock Earnings Reaction Sparks Heavy Options Trading

Texas Instruments stock gave a disappointing revenue forecast

Jan 24, 2018 at 10:17 AM
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Texas Instruments Incorporated (NASDAQ:TXN) said fourth-quarter profit plunged 67%, due mostly to costs related to U.S. tax reform. On an adjusted basis, the company reported earnings of $1.09 per share -- matching the consensus estimate. While the chipmaker's $3.75 billion in quarterly revenue edged past the forecast, TXN stock is down 5.4% to trade at $113.46, following a disappointing current-quarter revenue outlook.

While traders are taking a glass-half-empty approach to the Dallas-based firm's quarterly results, analysts were relatively impressed. No fewer than six brokerages upped their TXN price targets, with Susquehanna's hike to $130 from $110 representing the most optimistic outlook. Not all the attention was positive, with Deutsche Bank and Evercore expressing concern over Texas Instruments' inventory levels, though both left their ratings unchanged.

Heading into today's trading, TXN shares were surging -- up 58% since taking a bounce off their 200-day moving average last June. In fact, the stock topped out at a record high of $120.75 yesterday. Against this backdrop, the equity's 14-day Relative Strength Index (RSI) closed at 81 on Tuesday, well into overbought territory, suggesting a near-term pullback may have been in the cards. Regardless, the stock's 20-day moving average has so far contained today's selloff.

Options traders have been quick to react to today's price action, too. At last check, more than 26,000 contracts were on the tape -- 11 times what's typically seen at this point in the day, and volume pacing in the 100th annual percentile. Puts and calls are running roughly neck and neck, though the two most active options are the weekly 1/26 110- and 115-strike puts. New positions are being initiated at both strikes, but it's not entirely clear if speculators are buying or selling the positions.

While implied volatility (IV) levels are still elevated on TXN -- the stock's 30-day at-the-money IV of 24.9% ranks in the 95th annual percentile -- meaning short-term premium is more expensive than usual, historically speaking, puts are relatively cheap compared to their call counterparts. Texas Instruments' 30-day IV skew of 7.7% is docked in the 4th percentile of its 12-month range.


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