On Semiconductor trades under the symbol ON. Their products are used in the electrification of automobiles by allowing the batteries to charge and be used more efficiently, get lighter, and sense their surrounding environment better. They are very well positioned to benefit from the further electrification of the auto industry.

I am actively selling weekly option straddles for this company. I choose ON because the option prices have high implied volatility coupled with the fact that the company has a stable customer base with longer range customer contracts. They also have an active share repurchase plan and ON tends to stay away from making headline grabbing news.

So far this strategy has been working well, but I am searching the most recent 10K for reasons to stop or alter the current plan. Here is what I learned.

Share Repurchase Plan

ON appears to be purchasing shares regardless of what the price per share is. In October ON paid an average of $94.40 for 4.470 million shares. In November, ON paid $66.83 for 4.490 Million shares. They purchased 0 shares in December when the stock price creeped back up to the 80s. 

I started selling put contracts in late December and January thinking that if the stock price fell abruptly the repurchase plan may kick in and stabilize the stock price long enough for my downward rolling to catch up. I did experience the price fall that I dreaded and the price did stabilize and recover like I was hoping. It is unclear whether the repurchase plan had anything to do with it since all of this happened in 2024 and will be reported in ON’s next 10Q.

Even if the company did not step in and repurchase stock when the price dipped to the low 70s, they still have lots of dry powder left in the repurchase plan. For now, I think my investment thesis still holds. If you think I am wrong, now is the time to tell me in the comments.

Product Development

I would have a very difficult time describing what ON Semiconductors products do by just looking at their names. I can tell that if the world starts to look more like how this company is positioned to benefit, we would all be much better off. That doesn’t mean it will work or that other people also share my dream of a solar powered future with full self-driving cars. It also doesn’t mean that Onsemi can actually develop any of these products. This is a little worrisome. Below is a direct quote from the 10K.

Product Development

Onsemi is focused on innovation to create intelligent power and sensing technologies that solve the most challenging customer problems. Our product development efforts are directed towards the following:

•powering the electrification of the automotive industry with our intelligent power technologies that allow for lighter and longer-range electric vehicles and enable efficient fast-charging systems;

•propelling the sustainable energy evolution with our intelligent power technologies for the highest efficiency solar strings, industrial power and storage systems;

•enhancing the automotive mobility experience with our intelligent sensing technologies with imaging and depth sensing that make advanced vehicle safety and automated driving systems possible; and

•enabling automation and data exchange (Industry 4.0) with our intelligent sensing technologies for smarter factories and buildings.

5 Most likely Risk Factors (no particular order)

1. If we are unable to identify and make the substantial research and development investments or develop new products required to satisfy customer demands, our business, financial condition and results of operations may be materially adversely affected.
2. Because a significant portion of our revenue is derived from customers in the automotive and industrial end-markets, including revenue pursuant to our long-term supply agreements, a downturn or lower sales to customers in either end-market could materially adversely affect our business and results of operations.
3. If interest rates continue to increase, our debt service obligations under our variable rate indebtedness could increase significantly, which would have a material adverse effect on our results of operations.
4. Downturns or volatility in general economic conditions, as well as general macroeconomic trends and impacts, could have an adverse impact on our business, results of operations, financial condition and cash flows.
5. The manufacturing and other operations required to produce our products are highly dependent on the efficient operation of numerous processes, including processes contingent upon third-party component manufacturers and other service providers, and any disruption in these processes could have a material adverse effect on our business and results of operations.

Conclusions

I did not learn anything from the 10K that would convince me that large swings in the stock price are coming. I intend to continue selling out of the money puts that I calculate to have less then a 15% chance of going badly.