Bet On or Protect Against Intel Making New 52-Week Lows

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Fresh research and downgrades from Baird, JPMorgan Chase & Co. (NYSE: JPM), and others has caused weak performance in all areas of the PC and chip sectors. So much for that strong stock market correlation.

New projections of weak PC sales and building chip inventory puts Intel Corporation (NASDAQ: INTC) at risk given the company’s most recent guidance, which was issued less than a month ago. 

To make matters worse, the stock is now within 10% of it 52-week lows. In fact, two more days like this would bring on new 52-week lows. So let’s look at a very low-premium way to bet on this or to hedge against this possibility.  

With shares down 87 cents, or more than 4.2%, at $19.79, the 52-week range is $18.31 to $24.37. If this drop is repeated tomorrow, then the $19 strike price would already be in the money.

There are only 10 trading days left until August expiration, and the INTC Aug 19 Put is only 14 cents on the ask. It is almost paradoxical to call a speculative out-of-the-money option “cheap,” because it will expire as worthless upon expiration if the share price does not cooperate. But this one is cheap now, even considering today’s drop in share price. 

Today’s trading is certainly skewed to the call options. As of 12:30 p.m., Eastern, the closest three in-the-money and the closest three out-of-the-money August expiration calls had traded a combined 25,812 contracts versus 16,390 of the corresponding puts. That feels like a sucker’s bet to me.

The INTC Sept 19 Puts cost 46 cents today after the move down in shares, which is nearly double the price from yesterday. But, frankly, that is not very expensive either.

If Intel does hit 52-week lows, this is one of those low-premium and high-reward scenarios for speculators. And if you hold Intel shares and want to protect yourself from new lows, this also makes for an inexpensive hedge.

Follow Jon Ogg on Twitter @jonogg.

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Article printed from InvestorPlace Media, https://investorplace.com/2010/08/use-intc-options-to-play-fall-to-new-52-week-lows/.

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