Intel Corporation (NASDAQ:INTC) just reported earnings and Wall Street did not like what it saw. This dip, although it may seem like a debacle, does not change the long-term outlook of a company of this caliber.
I don’t need to defend the company’s fundamentals since INTC is a leader in an industry that is booming on the back of the digitization of everyday life. Technology is everywhere and we will need it even more later.
There will be profits for Intel and there will be higher prices for Intel’s stock. Dips like today only serve as better entry opportunities.
The problem is that in the moment, sharp stock retracements can be daunting. They often seem like bottomless pits scaring most investor from buying. Using options, I can structure trade setups that allow room for error, thereby eliminating the need to perfectly time your entry. Catching the proverbial falling knife suddenly becomes much easier and not as hazardous as buying INTC stock outright.
Case in point, about a week ago I shared a trade that was designed to be boring, yet it paid me easy profits … and didn’t even need to sweat over the earnings event. Now, I can reset a similar trade with profits in hand knowing that I can be just a little bolder this time.
I do have to recognize that technically INTC stock is still far from a sure bounce level, though, so it could be vulnerable to further downside. But that’s another reason to use options and not risk $36 here and without room for error.
The Trade: Sell the INTC June 2018 $30 puts and collect $1.70 per contract. Here I have a 90% theoretical chance to have of success
On another technical note, INTC stock is poised to break out into a very long-term bullish pattern that could result in a 20% rally. This dip could simply turn out to be a small step into a reload for the mega breakout. To capture that potential, I also want to invest some of my profits into a long-term call commitment.
The Juice: Buy the INTC June 2018 $42 call for 50 cents per contract. This is a small price to pay for the potential that it could yield. For a more aggressive version I could instead buy the $40 call, but then I’d have to sell two puts to finance one call otherwise the spirit of this trade changes from one that generates income to one that bets on the super spike.
Selling naked puts is dangerous, so I only do it if I am willing and able to own the shares at that price.
Learn options as easy as 1-2-3 in a personal 1on1 webinar here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.