Punch Up Some Profits on Texas Instruments

by John Kmiecik | September 11, 2013 8:14 am

Punch Up Some Profits on Texas Instruments

If you are over 30, you probably remember bringing a calculator to school for math class. Calculators have not become extinct, but computers have lessened the need for them — times have changed and will continue to change.

However, this simple trade idea focuses on a company whose calculator you might have owned, even though it now focuses its business in other areas.

Texas Instruments (TXN — $40.31): Long Calls

The trade: Buy the Oct 40 calls for $1.25 or less.

The strategy: Being long or buying a call option is probably the most fundamental option strategy. The trade can profit if the stock moves higher and the call premium increases to an amount more than was paid. Maximum profit is theoretically unlimited because TXN can continue to rise, and the maximum loss is $1.25 or whatever was paid for the option if TXN finishes below $40 at October expiration. Breakeven is $41.25 at expiration based on a cost of $1.25.

The rationale: Texas Instruments manufactures and designs semiconductor chips for customers worldwide. Last year, the company made a decision to exit the mobile computing segment and focus on other segments like wireless. TXN announced earnings in July, and so far, so good. Earnings increased from $446 million to $660 million, and Texas Instruments also said its order inflow looks healthy.

TXNchart 300x135 Punch Up Some Profits on Texas Instruments
Click to Enlarge
TXN stock has slowly been rising for almost a year with a few pullbacks mixed in. The stock just traded and closed above $40 for the first time in more than 10 years. The last time in threatened to do so was in 2007, and it failed. The stock has traded to higher levels in the past, so we know it is capable of continuing to do so. As long as TXN continues to close above $40 which shows a sign of strength, it might have a pretty good chance to continue to rise.

It might be time to break out your old TI calculators and add up the profits!

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get a free trial of John’s live options trading room here[1].

Endnotes:
  1. free trial of John’s live options trading room here: http://markettaker.com/options_insider_trial/

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