Intel Corp. (NASDAQ: INTC) stock is dropping today after the company agreed to pay a $250 million settlement to Transmeta Corp (NASDAQ: TMTA) in a patent dispute. The terms include one initial payment of $150M plus annual $20M disbursements. 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 INTC.Intel stock has climbed over the past six months, hitting a one-year high of $26.98 last week. This morning, INTC opened at $26.33. So far today the stock has hit a low of $25.62 and a high of $26.39. As of 11:50, INTC is trading at $25.72, down $1.08 (-4.0%). The chart for INTC looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $30 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 4.3% return in 3 months as long as INTC is below $30 at January expiration. Intel would have to rise by more than 16% before we would start to lose money. Learn more about this type of trade here.
INTC has not been above $30 since 2004 and has shown some resistance around $27.50 recently. This trade could be risky if the tech sector has a strong fourth quarter, but with signs of an economic slowdown, this looks like only a slight possibility.
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 TMTA. He does control a bullish hedged position in INTC. Both this position and the trade above can expire profitable at the same time.
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