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Intel Corporation (NASDAQ: INTC) shares fell today with most other tech stocks after Nvidia Corporation (NASDAQ: NVDA) lowered its second-quarter revenue outlook to a range between $875 million and $950 million, well below analysts' expectations of $1.1 billion. NVDA cited end-market weakness for the lower forecast, which could be a bad sign for INTC. 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 high of $27.99 in December, the stock hit a one-year low of $18.05 in January. This morning, INTC opened at $20.62. So far today the stock has hit a low of $20.26 and a high of $20.80. As of 12:10, INTC is trading at $20.65, down 0.28 (-1.3%). The chart for INTC looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $23 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 13.0% return in six weeks as long as INTC is below $23 at August expiration. Intel would have to rise by more than 11% before we would start to lose money.
INTC hasn't been above $23 since early June and has shown resistance around $22.30 recently. This trade could be risky if the company's earnings (due out on 7/15) are a positive surprise, but even if that happens, this position could be protected by resistance INTC might find at its 50 day moving average, which is currently around $23 and falling.
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 controls a bullish hedged position on INTC. Both that trade and the one above can expire profitably at the same time. He does not own nor control positions in NVDA.
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Reader Comments (Page 1 of 1)
8-04-2008 @ 12:40PM
Paul Marshall said...
Intel is a $30+ stock. It's current p/e -- under 19 -- is too low. It has a fabulous balance sheet, earns several billions per annum, has the leading technology in an extremely important and growing field, pays a 2%+ dividend, modest competition and the likelihood of new competitors minimal as far as the eye can see -- entering an industry that is making chips at the 35 nanometer level and where Intel with its resources and market share is so dominant, is daunting.
All of these suggest that it is a serious business with the potential to increase earnings for the foreseeable future. While it is large, the world is its oyster -- i.e. there is tremendous potential for growth as the world's economy grows.