Bulls and bears both make money. But at times, it pays to anticipate one of the camps losing big. Right now this scenario is setting up in Intel Corporation (NASDAQ:INTC), and that supports a trade idea.
It’s almost like déjà vu since we last wrote about Intel stock in early June. The market is still richly priced and near all-time-highs, and traders are still hanging on every utterance from Yellen & Co. regarding Federal Reserve policy.
But some things are different too … well, at least for Intel stock.
Shares of INTC have exploded higher and played a bit of catch-up with the market over the last couple months. Intel stock is up more than 9% in this time, while the S&P 500 is up around 4%.
Bulls might also proffer the narrative that Intel is now firing on all cylinders and is beating competitive threats from the likes of Advanced Micro Devices, Inc. (NASDAQ:AMD), Qualcomm, Inc. (NASDAQ:QCOM), ARM Holdings plc (ADR) (NASDAQ:ARMH) or NXP Semiconductors NV (NASDAQ:NXPI) — and this growth isn’t factored in. Maybe.
On the other hand, Intel’s valuation may not be as sweet based on a simple comparison of the company’s financial ratios, as well as following its recent, mixed earnings report.
There’s also INTC’s chart to consider. Bulls appear to have the advantage with a couple classically supportive patterns in tow, but that may be a better reason to use the position I’ll suggest below.
Intel Stock Weekly Chart
Technically, INTC is now forming either a smaller, first-base cup with a handle of around 10 months, or a larger “W” pattern nearing two years in length. Either way, classically both are bullish formations and work to reinforce one another.
Many price formations like the two developing in INTC wind up failing. And when a pattern does fail, it often provides a nice profit for traders that faded the original setup.
Given a fragile bullish environment entering the two most volatile calendar months of the year, I like a long strangle in Intel stock.
The Trade on Intel Stock
For traders that agree with the discussed logic, consider the INTC Oct $37/$33 long strangle. The trader’s risk is the purchase price of the spread, which currently sits at 96 cents. If Intel stock trades between $33 to $37 at expiration, the entire premium is forfeited.
The benefit of this particular strangle is it mostly covers the volatile months of September and October. Our expectation is that the period should allow Intel stock to move in a meaningful way toward (and then breaking through) one of the strikes, resulting in a profitable outcome for the spread.
Additionally, time decay isn’t an issue right now, and earnings are scheduled for Oct. 11, which could act as an additional catalyst and support for this type of positioning.
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.
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