Our lives are now more dependent on technology than ever before. And the rate of change there is taking a hyperbolic trajectory. Technology begets more technology. Intel Corporation (NASDAQ:INTC) is a tech dinosaur that survived the near-extinction event of the dot-com bubble. It remains as one of the few providers of brains to all this tech.
So it’s safe to say that the sector as a whole is hot. Today, I want to chase one of the cheapest of them higher. Yes, INTC valuation lags its competition and I think it’s only a matter of time before it catches up with them.
In addition to the valuation reason, I also see its potential on a technical basis. The daily chart shows that even after a 5% recent rally, Intel stock is knocking on a neckline that could open the door for another burst higher.
The exciting part of this is that the next 5% move thereafter could open the door for an even bigger technical signal. This is evident on the weekly chart below.
I usually prefer taking risks with fundamental conviction and value. In this case, my trigger is a technical one so I can’t just buy the stock and hope it rallies. I do however believe in the value through 2017 so I can use that to generate profits without the recklessness that comes with chasing prices.
So I will use the Intel options to bet along side proven support levels. I will sell risk against them and let time do the work for me. If price stays above my strike then I would have generated income out of thin air. So my thesis today is technical but the strategy is based on proven fundamentals.
Click to Enlarge Analysts are not as excited as I am about INTC’s prospects. A lot of them rate it as a SELL which is not common. Current price is still below the midpoint of their range which is pretty wide. The point here is that the expectations on Wall Street are not exuberant and this reduces the surprise downgrade headlines.
The Trade: Sell INTC Jan 2018 $32 put and collect 55 cents per contract to open. This is a bullish trade that has an 80% theoretical chance that price stays above my strike to win. Otherwise, I must buy the shares at that price and accrue losses below $31.45.
For those who prefer taking more limited risk than selling naked puts, they can sell spreads instead.
The Alternate Trade: Sell INTC $32/$30 which will yield 10% on risk if it wins. In either case I don’t need a rally to win. All I need is for INTC to not fall more than 11%.
Although I come into this with profits in hand from previous trades like this one, I never bet more than I can afford to lose. There are no guarantees when investing in the stock market. If there were they’d be no reward.
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 as @racernic on twitter and stocktwits.