Texas Instruments Inc. (NYSE: TXN) is falling today along with most other technology stocks after Intel Corp. (NASDAQ: INTC) cut its first quarter earnings outlook, citing weak memory chip prices. 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 $28.00 in January. This morning, TXN opened at $29.71. So far today the stock has hit a low of $28.53 and a high of $29.80. As of 1:00, TXN is trading at $28.93, down $1.00 (-3.3%). The chart for TXN looks neutral and improving while S&P gives TXN a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $35 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 a 12.1% return in four and a half months as long as TXN is below $35 at July expiration. Texas Instruments would have to rise by more than 21% before we would start to lose money.
TXN hasn't been above $35 since October and has shown resistance around $32 recently. This trade could be risky if the economy bounces back strongly, but even if that happens, this position could be protected resistance the stock could find at its 200 day moving average, which is at $34 and falling.
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. He does control bullish hedged positions in INTC.
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