Shares of semiconductor company Texas Instruments (TXN) are down about 14 percent in the past year, about in-line with the overall stock market. One trader sees a further decline in the weeks ahead.
That’s based on the November $160 puts. With 71 days until expiration, 5,075 contracts traded compared to a prior open interest of 113, for a 45-fold surge in volume on the trade. The buyer of the puts paid $8.60 to get into the trade.
Shares recently traded for about $163, so they would need to decline about 2 percent in order for the option to move in-the-money. The stock has a 52-week low just under $145.
Texas Instruments has seen revenue rise 14 percent in the past year, and earnings are up 19 percent. Plus, profit margins have hit 44 percent amid huge demand for semiconductors. But in the short-term, the company is likely to retest its June lows in the coming weeks.
Action to take: Investors may like shares on a further pullback into the $150 range or under. That will also put the stock’s dividend closer to 2.8 percent, ahead of any further dividend growth. For now, it makes the most sense to wait for such a drop lower.
For traders, the options are positioned to move in-the-money quickly. While that may not lead to the best percentage return on a drop in shares, it does make it more likely that the option will retain more value for longer. Traders can likely nab mid-double-digit returns in the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.