Filed under: Forecasts, Bad news, Industry, Texas Instruments (TXN), Options, Technical Analysis
Texas Instruments (NYSE: TXN) shares are falling after the company warned that weak demand for its chips used in cell phones could injured profits. TXN narrowed its second-quarter earnings forecast to a range of 43 cents to 47 cents per share, from a range of 42 cents to 48 cents per share. Analysts are expecting earnings of 46 cents per share. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on TXN.
After hitting a one-year high of $39.63 in July, the stock hit a one-year low of $27.51 in March. This morning, TXN opened at $30.75. So far this day the stock has hit a low of $30.40 and a high of $30.95. As of 12:30, TXN is trading at $30.72, down $0.61 (-2.0%). The chart for TXN looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would think about an October bear-call credit spread above the $37.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in four and a half weeks as long as TXN is below $37.50 at Might expiration. TI would have to rise by more than 21% before we would begin to lose money. Learn more about this type of trade here.
TXN hasn’t been above $37.50 since July and has shown resistance around $33 recently. This trade could be risky if the company’s earnings (due out on 7/21) are a positive surprise, but even if that happens, this position could be protected by resistance TXN might find around $34, where it topped out in December.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in TXN.
Entries (RSS)