Since early February, the stock market has been on a downhill slide. The trigger was an overheated jobs report on April 2. But since then, it has been a slew of headlines mostly from the White House threatening global growth that have exacerbated the situation.
This morning stocks are falling again on yet another headline of specific tariff targets. Intel Corporation (NASDAQ:INTC) fell another 3% on the headline.
So far, INTC fared better than the indices. It actually rebounded off the February correction and set a new high So a dip here still leaves it up 6% for the year.
The equities in general suffered from the announcement of tariffs and White House turnover, which suggest the growth of protectionist behavior. The headlines are still abuzz as President Donald Trump tweets all day and all night, so fundamentals are hostage to headlines for the time being. Eventually this will change, and therein lies part of my opportunity.
In addition, Intel stock this week got hit with a new headline — only this one was specific to its business. Apparently, Apple Inc (NASDAQ:AAPL) is looking to move away from using Intel processors by the year 2020.
This is a headline that could fundamentally change the game for Intel. All the other broad-market headlines were mostly short-term noise and did not change the macroeconomic conditions within which INTC operates.
So, am I brave enough to catch this falling knife that is INTC stock? My short answer today is yes! But I will do it through options so I can leave room for error.
My thesis is simple; the overall stock market still looks favorable for bulls because although president Trump has become hostile to the stock market, his policies are already in place. The tax benefits and the corporate shelters from regulation are already in effect.
Click to Enlarge So I bet that the near-term support for Intel stock will hold through 2018. Meaning I don’t see Intel crashing all by itself, while the stock market rallies. Under this macroeconomic assumption I will sell premium into what others fear so I can create income out of thin air.
The worst that could happen is that I could end up owning shares at a 15% discount from current levels, and this is a risk I am willing to take. Fundamentally Intel stock is not bloated, it sells at a reasonable price-to-earnings ratio versus its peers. It is much cheaper than Nvidia Corporation (NASDAQ:NVDA) but not as cheap as Micron Technology, Inc. (NASDAQ:MU).
I see technical support at $44 per share and then lower near $36. So I will place my risk below both to set the best starting odds to my risk. It is important to note that the $35 area has been a pivot point since the 1990’s.
Intel Stock Trade Idea
The Bet: Sell the INTC OCT $35 naked put for 75 cents per contract. This is a bullish trade where I have a 85% theoretical chance for maximum gains. Otherwise, I will own shares and accrue losses below $34.25.
Selling naked puts is daunting especially while we face trade war headlines. Those who want to mitigate that risk can sell spreads instead.
The Alternate Bet: Sell the INTC OCT $36/$34 credit put spread, which has about the same odds of winning and would yield 10% on risk. Compare this with risking $48 per share here and without any room for error expect a rally profit.
Get my free newsletter and subscribe to my YouTube channel 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.
