By Jud Pyle, CFA, chief investment strategist for the Options News Network
Investors looking to buy
Oct. 20 call options have more than enough supply on their hands, thanks to at least one call seller, who has been boosting volume today.
Looking at the Oct. 20 calls, we saw more than 5,000 contracts cross the tape before 10:15 a.m. EST, and currently more than 5,300 contracts have traded so far today. The bulk of the call options traded before 11 a.m. EST.
Heading into today's session, open interest at this out-of-the-money strike was just 1,738. The call options are trading around $1.30, up about 12 cents from today's open. Shares of TXN stock have jumped nearly 2%, or 35 cents, to $18.30.
What's also interesting is an investor sold more than 25,000 Oct. 20 TXN put options for $3.53 vs. a stock price of $17.55 on Friday, when TXN call options were trading for $1.18 compared to the stock at $17.95.
So what can we say about today's call activity? These calls are slightly out-of-the-money, but stock continues to climb higher than Friday's close of $17.95 and is now up more than 37% from a 52-week low of $13.38 reached on Dec. 5. As a result, implied volatility has dropped substantially to 40.1 from 41.24 at the close Friday and 42.93 at the close last Monday.
Judging from significant put activity for TXN on Friday, an investor is likely to be selling calls after selling puts. TXN did not announce anything newsworthy today, but analysts estimate that the company's earnings per share will rise to 11 cents this quarter and 18 cents next quarter even after a 16% drop in profit from fourth-quarter 2008, which brought company earnings to 1 cent per share in the first quarter. But some investors aren't convinced that TXN shares will gain significantly before second-quarter earnings on July 20.
Investors should not run right out and sell their shares just because there's significant call-selling activity today. But it demonstrates how some investors are selling call options to protect some of the gains they've collected since the end of last year.
The weekend turnaround to call-selling from put-selling could be a bet by a long stockholder that, even though the shares are trending higher, a big rally is unlikely for TXN in the near future.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."