Trade Ideas April 23, 2020

Intel (INTC) Q1 Earnings Preview

by Dan

Today after the close INTC will report their Q1 results. The options market is implying about a 5.7% one day move tomorrow. With the stock around $59.50, the April 24th 59.50 straddle (the call premium + the put premium) is offered at $3.40 or 5.7% of the stock price. If you bought that, and thus the implied move for earnings, then you would need a rally above $62.90, or a decline below $56.10 to make money. Shares of INTC have been particularly volatile the day after earnings over the last year, with the last two results met with 8% one day moves higher.

Shares of INTC are flat on the year, and down 13% from its highs made in January right after their Q4 results and at the exact same spot to where it was in the days before its run into and out of Q4 earnings:

Short-dated options prices are down 50% from its recent highs, but still up 100% from its February highs…

 

The stock’s outperformance suggests expectations are high but at 12x 2020 expected eps the stock is cheap to the market and its peers. But the big question is how low will 2020 eps (that is expected to decline 1%) and sales (expected to increase 1%) go?

If I were long INTC and want to stay long but define my risk I might consider collars, selling and out of the money call and using the proceeds to help finance a downside put… for instance…

vs 100 shares of INTC at $59.50 Buy June 67.50 – 50 collar for even money

-Sell to open 1 June 67.50 call at 1.35

-Buy to open 1 June 50 put for $1.35

Break-even on June expiration:

Profits of stock up to 67.50, stock called away up 12%

Losses of down to 50, but protected below

Rationale: an investor would place a hedge on a stock in this situation if they did NOT want to sell the shares, but wanted to define their risk tot the downside for a period of time, while also have the ability to participate to the upside to a price. But most importantly, willing o limit potential upside in place of defined risk to the downside.

 

 

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