Texas Instruments (TXN) rises on solid earnings

Posted Jan 23rd 2008 12:49PM by Brent Archer
Filed under: Earnings Reports, Good news, Texas Instruments (TXN), Options, Technical Analysis

Texas Instruments Inc. (NYSE: TXN) shares are rising today after the company posted a fourth-quarter profit of 54 cents a share yesterday after market close. Analysts had expected a profit of 52 cents per share. The company cited strong demand for chips used in third-generation mobile phones as a key factor in the strong earnings report, and said it expects year-on-year revenue growth to accelerate in the first quarter. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on TXN.

After hitting a one-year low of $28.30 last January, the stock hit a one-year high of $39.63 in July. TXN opened this morning at $28.51. So far today the stock has hit a low of $28.40 and a high of $30.07. As of 11:45, TXN is trading at $29.45, up $0.47 (1.6%). The chart for TXN looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make an 8.8% return in just three months as long as TXN is above $25 at April expiration. Texas Instruments would have to fall by more than 15% before we would start to lose money.

TXN hasn't been below $28 at all in the past year and has shown support around $29 recently. This trade could be risky if the weak economy drags down TXN despite, but even if that happens, this position could be protected by support that today's good earnings provide.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in TXN.

Tags: earnings, inthenews, options, Texas Instruments, TexasInstruments, TXN