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Intel Corp. (NASDAQ: INTC) stock is trading lower this morning after an analyst at Banc of America Securities downgraded the stock to "Neutral" from "Buy," pointing to weak seasonality in the first half of 2008. Banc of America downgraded seven other chipmakers, including Advanced Micro Devices (NYSE: AMD) and National Semiconductor Corp. (NYSE: NSM), taking a more cautious stance on the semiconductor industry due to slightly higher inventory levels, the likelihood of weak seasonality, and a potential macroeconomic slowdown. 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.After hitting a one-year low of $18.75 in March, the stock hit a one-year high of $27.99 in December. So far today the stock has hit a low of $25.38 and a high of $26.34. As of 11:05, INTC is trading at $25.47, down $1.19 (-4.4%). The chart for INTC looks bullish but deteriorating, 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 an April 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 an 11.6% return in 4 months as long as INTC is below $30 at April expiration. Intel would have to rise by more than 21% before we would start to lose money.
INTC hasn't been above $28 at all in the past year and has shown resistance around $27.50 recently. This trade could be risky if the technology sector continues to steam ahead, but this position could be protected by resistance INTC might find at its year high, which is at $27.99.
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 does not control bullish hedged positions in INTC, and he does not control positions in AMD or NSM.
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