Just two weeks ago Intel Corporation (NASDAQ:INTC) fell on earnings and I shared a bullish trade that delivered profits from thin air. Today INTC is falling again so I want to rinse and repeat the process knowing I have profits in hand.
On Wednesday, INTC stock fell on a downgrade — this on a day where Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD) rallied hard. This usually would be a bad omen for Intel bulls, but on the positive side, the downgrade had a muted effect and besides, it’s one person’s opinion and doesn’t change the facts.
Click to Enlarge Fundamentally INTC is a long-term proven performer. Management rarely gives Wall Street reasons to punish it. It sells at a modest 15.6 times trailing price-to-earnings ratio, which is cheaper than its competitors. Furthermore, I don’t expect a deluge of downgrades, as the analyst ratings distribution is in balance and spread across three levels.
So traders now need to get over the fear of catching the proverbial falling knife. It’s not usual habit for me to grab trash stocks that are falling, but when I see a quality name dip, I don’t mind taking the risk.
I am a conservative trader so I won’t buy Intel stock at face value and without any room for error. After all, markets are at all-time highs. So I will use options to structure a trade setup that will generate income from proven support levels.
INTC Stock Trade Idea
The Bullish Bet: Sell the INTC Aug $32 put and collect 35 cents per contract. If price stays above my risk then I retain my maximum profits. Otherwise, I start losing money if INTC falls below $31.65 per share.
Selling naked puts is not for the faint of heart, so I could use credit put spreads instead. The difference is that the spread’s maximum risk is finite, thereby greatly reducing the maximum exposure in case of a crash.
It is important to note that using options virtually eliminates the need to be perfect with the timing of entry. Since all I need is that INTC stock price stay above my sold risk, I can profit even if it falls another 10% from here.
Technically I do have to acknowledge the risk of losing the next two trend lines (pictured in the chart above). That would likely invite momentum sellers. Range has been tightening, so a move is imminent and it could very well be to the downside. Even then, there are other support levels that stand above my exposed risk.
I am not required to keep my options trades open for the duration. I can close them for partial gains or losses at any time.
E-mail sellspreads@gmail.com with questions or join me to learn more about options 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.
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