Our lives are now more dependent on technology than ever. What’s even more impressive is the adoption rate. The speed of new tech taking over aspects of everyday life is blindingly fast. Intel Corporation (NASDAQ:INTC) is one of few providers of brains to all this tech.
Fundamentally, a company as seasoned as INTC should have a rosy long-term future. It has a few competitors, but there is enough room for everyone to thrive. And the cost of entry is high enough so that there won’t be too many new entrants into the arena.
Click to Enlarge Technically, INTC stock could be developing a massive bullish pattern that could bring new multi-decade highs … but it could take some time.
The earnings release in a couple of weeks could spur a move, but those events for the short term are coin flips. The short-term reaction to earnings is more gambling than investing regardless of the quality of the report.
From a price-earnings perspective INTC is not expensive. Furthermore the analyst expectations are also evenly distributed. So INTC stock is not set up for a big disappointment. Nevertheless, I am not a fan of buying Intel stock here and risking $36 per share hoping for a rally. Instead, I prefer selling risk below proven support and let time do the work and I can profit even if the stock stalls.
The Bet: Sell the INTC Dec $31 naked put and collect 90 cents to open. In essence, I get paid for a chance to own Intel stock at a 15% discount from current levels. If it falls below $31, I would be put the stock and accrue losses below $30.10 per share.
Selling naked puts is dangerous and I only do it if I am willing and able to own the stock at that price so it can be daunting. To render the risk more time, I can change the bet to a sold credit put spread instead. This way my maximum risk will be finite and still earn a respectable yield.
The Alternate: Sell INTC $31/$30 credit put spread. Both trades have about the same theoretical 85% chance of success but this one is hedged where as the sold naked put is not. If successful the spread will yield 20% reward on risk.
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.