The S&P 500 has been in a volatile channel for some time now. This week, however, it broke out of its range to the downside, which doesn’t bode well either for the market or for individual stocks. The positive side of that for options trading investors is that it’s getting easier to find long-put candidates. One such bear play is Intel Corp. (NASDAQ: INTC).
For most of this year the giant chip maker had been trading in a relatively tight range with a low of $17.60 and a 52-week high of $23.96 that it reached in the in middle of May. Since then it has trailed off and it closed on Friday at $21.38. INTC is scheduled to report second quarter results on July 20.
INTC is in a recent bear trend. Last week it broke below its 50-day moving average and looks to be on its way lower. A long put is a strong long play that can rack up nice profits if the market rout continues. Specifically: Buy the INTC Jul 21 Puts @ $0.50 or better.
This is a low-risk play; the most a trader can lose is the $50 spent on the option. The break even on the stock is $20.50.
And the gain can be substantial. INTC has a gap to fill in its chart that resulted from its last earnings announcement. If the gap is filled, it could take the stock down below $20. If that move happens in the short term, the 21 puts could rack up a nice leveraged profit. However the stock will have to move prior to July expiration on Friday, July 15.
Dan Passarelli of MarketTaker.com writes the Market Taker Edge options newsletter. Dan has more than 17 years’ experience in the options industry as a market maker, Options Institute instructor and author of “Trading Option Greeks.”