A relatively attractive dividend, a recent earnings beat and mostly positive analyst favor have failed to lift Intel (INTC) shares in any meaningful manner. So, with Intel stock flirting with a very bearish chart, the time looks right for INTC options traders to position with a long put strategy.
No doubt, Intel stock has some favorable factors supporting it. Sporting a dividend yield of 3.4%, Intel stock is one of the larger bearers of shareholder value in technology. That’s certainly worth considering if you’re an INTC bull.
Secondly, the world’s largest semiconductor manufacturer also recently topped Street views on both its top and bottom lines. And lastly, on the heels of its earnings report, Wall Street analysts have also been, by and large, fairly upbeat on Intel stock.
One of those recent upgrades for Intel stock came from Needham, which raised INTC from a “hold” to “buy” with an attached $37 price target on Intel’s stock price. Other firms were seen defending existing “buy” ratings and price targets all the way up to $40 a share.
Most of the positive feedback from the analyst community for Intel stock has been attributed to the company’s data center and flash memory business and continued push into the Internet of Things. Combined, those areas have managed to gain ground and compensate for Intel’s still gargantuan and problematic ties to the dwindling PC market.
Intel Stock Weekly Chart
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Well, for one thing, INTC shares have gone lower in the face of all those supports. Also, our bottom line is aligned with an ominous head-and-shoulders pattern on the weekly chart of Intel stock, with shares currently testing the formation’s neckline.
A break lower from here in Intel stock price could find shares dramatically lower based on the head and shoulder’s size. The Intel stock chart suggests a measured move out of the bearish pattern could take INTC shares all the way down to $20-$21.
The 30% decline from current levels is calculated by taking the vertical point spread from the neckline up to high’s at Intel’s head. Conservatively, the point spread works out to about $8, which is subtracted from a neckline price of $29.
Standing in the way of our aggressively lower target in Intel stock price and one far removed from the Street’s more bullish analysts is the $27-$27.50 area. This potential support area holds a 62% Fibonacci retracement level and the 200-week simple moving average. Beyond that, there doesn’t appear to be much holding Intel stock back from yielding a more massive dividend payout of 4.7% down at $20.50.
Intel Options Strategy
One strategy that’s attractive is the Oct $29 put for $1.10 or better. With shares of Intel stock trading for $29.25 in the first hour of Monday’s trade, I’d use a stop-loss of $30.55.
Using $30.55 in Intel’s stock price as a stop acts to minimize the risk to approximately 50% of the initial premium paid, or about 55 to 60 cents. This stop level in INTC is also slightly above the highs set in the immediate aftermath of Intel’s earnings announcement.
Given the described supports for Intel stock bulls, this seems like an appropriate and realistically loose enough line in the sand for bears rather than “shouldering” unnecessary pattern risk if the neckline signal fails to work authoritatively.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
