Update: TXN last night cut their Q3 guidance below the mid point of the range….Stock was initially down a few % and now up on the day….I am now selling the Put Spread that I bought yesterday for .03 loss at .12 with the stock at 26.00. Believe it or not I view this as a little bit of a victory considering the stock is trading higher….I didn’t have a ton of conviction but I wanted place a low conviction defined risk play on the event.
Original Post Sept 8th, 2011:
TXN is holding their Q3 mid quarter update tonight…..Company has posted disappointing results over the last 2 quarters, primarily as a result of the difficulties of one large customer, NOK. Not sure much has changed and TXN has been desperately trying to broaden its revenue dependence away from NOK which is approximately about 7.5%.
Expectations are not high to say the least as we head into tonight’s call as most analysts expect the mid point of their previous guidance to clearly come down, while almost all expect commentary about the current market outlook as less than rosy.
While I don’t have strong conviction that the company will dramatically lower guidance, I am generally bearish as it relates to the semi space (and the market) and I want to look for a low premium defined risk way to play…the stock has recently rallied about 7% off the 52 week lows made Tuesday morning. As most of you know I am not in the business of pressing shorts at 52 week lows, but given the market environment we are in stocks clearly have the ability to overshoot on the downside on the least bit of bad news…..and overshoot on the upside with mildly positive news (see NVDA yesterday).
TRADE: TXN $26.00 BUY Sept 25/24 Put Spread for .15
-Buy TXN Sept 25 Put for .25
-Sell TXN Sept 24 Put at .10
Break-Even on Sept Expiration:
Profits: btwn 24.85 and 24 make up to .85, below 24 make full .85 or ~6x your money.
Losses: btwn 24.85 and 25 lose up to .15 and above 25 lose .15
TRADE RATIONALE: As I said above I don’t have a ton of conviction but I am bearish and this fits into my thesis with an event. I want to define my risk and risk what I am willing to lose….if the stock is up or even just down a little this will lose most of its value in short order….this sort of trade should be considered by those who share my view on the semis, the stock and the market….IT IS SPECULATIVE, and not for conservative investors….I do these sorts of trades when my risk budget is ample, not when I am reaching to get back losses, I am playing with profits.