Pre-Earnings Put Volume Explodes on Texas Instruments Incorporated (TXN)

Texas Instruments Incorporated (NASDAQ:TXN) will take its turn in the earnings confessional after tonight's close

Apr 27, 2016 at 2:51 PM
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Put buyers have been flooding Texas Instruments Incorporated's (NASDAQ:TXN) options pits in the weeks leading up to the semiconductor stock's first-quarter earnings report, due out after tonight's close. 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 19.05 sits higher than all other comparable readings taken over the past year.

It's a trend that's continuing today, with put options crossing at five times the average intraday rate. The equity's weekly 4/29 59-strike put is most active, with 4,602 contracts on the tape. It seems safe to say these options are being bought to open, as speculators bet on the stock sliding below $59 by Friday's close, when the weekly series expires.

Longer-term -- and more skeptical -- traders, meanwhile, appear to be purchasing new positions at TXN's May 57.50 and 58 puts, where roughly 5,000 contracts have collectively traded. These front-month options will expire on Friday, May 20, giving these put buyers a little more time for their bearish bets to play out.

Now appears to be an opportune time to purchase premium on TXN's short-term options, too. Even with earnings looming, the stock's Schaeffer's Volatility Index (SVI) of 26% sits lower than 67% of all comparable readings taken in the past year. In other words, the equity's near-term options are pricing in relatively low volatility expectations at the moment.

For tomorrow's trading, specifically, it looks as if the options market is expecting Texas Instruments Incorporated (NASDAQ:TXN) to swing 6.9% -- more than the 4.1% single-session post-earnings move the stock has averaged over the past eight quarters. A move to the upside would only echo the equity's longer-term technical trajectory. Year-to-date, the shares of TXN are up nearly 9% at $59.62, and fresh off this morning's new annual high of $59.95.

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