I don’t want to take anything away from Intel (NASDAQ: INTC). It’s been a good, stable company for a long time now. The stock pays a reasonable, consistent dividend. The company has massive market share. It’s not a bad stock to stash away in your retirement portfolio.
But when’s the last time the company has been truly exciting? These days, INTC is mostly known for being boring, while its competitors are talked about for their involvement in cutting edge areas like cryptocurrencies and virtual reality.
While Intel’s products may not be the most inspiring, the company’s stock price may start turning heads very soon. In fact, the stock just hit a 52-week high at over $55 per share after reporting blow-out earnings.
More specifically, INTC’s earnings came in at $0.87 per share compared to the $0.72 expected by analysts. Moreover, revenue was $16.1 billion compared to the forecast of $15.1 billion. Clearly analysts weren’t expecting anywhere near this kind of quarter from Intel.
Despite the impressive results, gains were short-lived, as the share price dropped back down below $53 on the close. Investors were apparently eager to lock in profits after INTC’s uncharacteristically big jump higher.
Many technical traders will tell you this sort of move is a bearish signal. They may say if the stock can’t maintain a positive move after such great earnings, it’s destined to go lower. Well, I’m not a technical stock trader. Instead, I prefer to look at the options action.
For instance, the day after earnings, 70% of options trades on INTC were bullish. What’s more, over the last 30-days, 62% of option trades were bullish on average per day. In other words, options traders definitely think Intel shares are going higher.
After earnings, there were several bullish option trades that caught my eye. One in particular that is extremely bullish is the purchase of 4,700 June 15th 60 calls for $0.46. This trade was made with the stock at $54 so the buyer is expecting more than a 10% move higher in the next 6 weeks.
Another big upside trade I saw was someone rolling their May 55 calls to June 55 calls. The June 15th calls cost $1.48 and the trader bought 1,000 of them. If the stock climbs above roughly $56.50 by June expiration, those calls will be winners.
While both of these trades are good ways to speculate on the upside, as always, I prefer using call spreads to lower the premium cost of the trade. For example, using a call spread, we can get almost three months of time for the trade to work and still pay under $1.
The July 20th 55-60 call spread cost about $0.90 with the stock around $52. That’s a breakeven point of just below $56 and max gain over $4 on the trade. We’re talking about gains of 400% if INTC goes to $60 or above.
If you believe it’s a matter of time for Intel to go higher (based on last week’s great earnings), then a call spread provides a nice balance between risk and return. Using a July call spread, you can buy yourself extra time while also leaving plenty of room to run on the upside.
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— The Option Specialist
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