Intel Corporation (NASDAQ:INTC) reported earnings last night after a difficult day for the tech sector, and the stock is up 1%. That’s impressive since most other reactions from Starbucks Corporation (NASDAQ:SBUX) and Amazon.com, Inc. (NASDAQ:AMZN) to name two were terrible. 2017 hasn’t been good for Intel stock. At its worst, it was down 9% year-to-date, but it had positive momentum into the report.
Most of the selling in INTC was because of the perception that Advanced Micro Devices, Inc. (NASDAQ:AMD) was going to seriously mar its business. I think there is room for both to prosper and Wall Street perhaps now sees it the same way.
After all, INTC has been the behemoth, and it will take more than a few quarters to knock it off its pedestal. I want to stay on board long the stock as it’s not too late to add.
Click to Enlarge Fundamentally, INTC runs with a 15 price-to-earnings ratio, which is lowest among its competitors and in absolute terms. So owning it here is not likely to be a big mistake over the long term.
But I am not a buy-and-hold investor. I prefer to sell and wait. I sell premium against downside risk then wait for time to earn me my profit. I do this with confidence when I have quality companies that are cheap, like Intel.
Technically speaking, the stock is sitting near the mid-range of its 52 week period. So if you believe in balance, it’s a decent place to get long a good company. Over the longer term, INTC stock price action is still constructive with breakout opportunities higher still.
The positive reaction to earnings came at an opportune time for the stock. Since June, INTC had a 10% correction that finally turned around a couple of weeks ago. But coming into the earnings, the stock was coming up on pivotal level. $35 per share which was the neckline for a large bearish head-and-shoulder pattern so it was important they take it back. This is a good start towards accomplishing that.
Dips in quality stocks are usually buying opportunities as we recognized near the recent bottom, and we profited from it with this trade.
INTC Stock Trade Ideas
The Trade: Sell INTC Jan 2018 $31 puts for 85 cents to open. This gives me 85% theoretical odds of winning. But if price falls below my strike I could suffer losses below $30.15. The good news is that I have a 12% buffer, and given the value in INTC now, I am confident that I would be able to manage that risk should it come.
Selling naked puts requires margin but I can mitigate this risk by selling spreads instead. When I buy an equal number of puts lower than the ones I sell, I limit the total money at risk.
The Alternate Trade: Sell INTC $30/$28 bull put spread. Here I have about the same chances of success, and this would yield 17%. I am more confident risking the chance of buying INTC stock lower than putting my money at risk here and without a buffer. This is especially important since markets in general are at all-time highs.
There are no guarantees when investing in equities. So I never risk more than I can afford to lose.
Learn how to generate income from options 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.
