Options Alert: Giant Neutral Strategy Targets Intel Following Sharp Drop

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Intel’s been dropping for nine months, but one big options trader is looking for the semiconductor giant to stabilize.

This large transaction involving short calls and short puts occurred yesterday as INTC tried to hold its lowest level in over a year:

  • 30,000 March 50 puts were sold for $3.37.
  • At the same second, a trader sold a matching number of March 50 calls for $1.27.
  • Volume exceeded open interest at both strikes, which suggests it was a new short “straddle” position.

Calls fix the level where investors can buy a security, so they can gain value when shares appreciate. Puts are the opposite because they designate a selling price. Traders looking for directional moves could purchase either.

Monday’s transaction was just the opposite because both calls and puts were sold. Instead of paying to own the options, he or she sold them to receive a credit now. The resulting position could be profitable if the stock is rangebound for the middle of next month.

They collected a total of $4.64, which is the distance INTC can move away from $50 before they start losing money. That translates into a range between $45.36 and $54.64.

Intel (INTC), daily chart, showing key levels.

The strategy is known as a “straddle” because it sits on either side of a single price. It’s a neutral trade that looks for a stock not to move, and for volatility to decline. It has potentially significant risk of loss if the shares make a big swing in either direction.

Intel Earnings

INTC rose 2.28 percent to $48.82 yesterday. It dropped more than 8 percent last week after forecasting weaker-than-expected profit margins for the current quarter. The announcement suggested CEO Pat Gelsinger’s turnaround plan will cost more than feared. There was also a sharp slowdown in chips for personal computers, which surged during the work-at-home period. Citi predicted further slowing as life returns to normal.

That selloff brought INTC toward the $45.24 area where it bottomed in December 2020. Some chart watchers may consider that level support, which would explain the short straddle trade. They may also see limited potential for a bounce given the stock’s downtrend over the last year.

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