Regarding market opportunities in the semiconductor industry, Intel (INTC) no longer commands the social cachet it once did decades ago. Due to various missteps, controversies, and outright strategic blunders, Intel has now found itself on the back foot relative to its chip-making peers. As a result, very few investors are looking to INTC stock for upside prospects in the current market.
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However, there is another way of extracting a lucrative trading opportunity from INTC stock. If harnessing the utility of options, short-medium-term focused investors can profit from INTC.
Without options, it’s difficult to extract value from a beleaguered stock that’s trending lower and failing to acquire positive sentiment despite posting solid performance metrics. Technically speaking, Intel’s fourth-quarter earnings report eclipsed expectations. While the company’s revenue slipped by 7.4% year-over-year to $14.26 billion, this tally beat the consensus view by $430 million. However, the market consensus on INTC is currently strained, to say the least.
INTC’s Statistical Framework Sets Up Options Trade
Unlike investing in the security itself, traders seeking robust returns over a short period may consider options trading. However, prospective speculators must be aware that options are considered “wasting assets” — eventually, all options expire worthless. Therefore, while cheap, far-out-the-money options are tempting, they stand a high risk of not being salvageable at the time of expiration.
As the passage of time reduces the premium value of options as they near expiration, traders of these derivative instruments usually think in short-term cycles. Therefore, many traders focus on pricing behaviors rather than large-scale fundamentals.
To be fair, INTC stock is historically risky because it features a downward bias. Using data from the trailing five years, a position entered at the beginning of the week only has a 50.94% chance of rising by the end. Extend this framework to four weeks; the long odds will slip to 49.62%. Effectively, INTC is a coin toss.
It’s worth noting that INTC incurred a 6.63% loss last week as investors digested the muted outlook disclosed during the Q4 earnings report. Generally, negative weeks have a median loss of 3.09%, so this volatility is highly unusual. Notably, in the first week following a weekly loss between 5% and 10%, INTC’s long odds rises to 53.13%.
Unfortunately, by the end of the fourth week following this extreme fear event, the long odds diminish to 40%. Theoretically, the statistical trend warrants consideration of a bearish strategy, not a bullish one.
However, it’s important to note that in the recent past, when Intel delivered bad news — namely, the Q1 and Q2 earnings results of last year — the market digested the sourness immediately. Additional large-scale downside sessions were avoided until the following poor earnings results. The market may have already priced in the challenging outlook. Contextually speaking, INTC stock may have a decent chance of upside in the next few weeks.
Two Trades to Consider for Speculative Traders
Dynamically, given the condition of INTC stock suffering an extreme-fear event last week, there are better-than-coin-toss odds that shares will rise by this Friday (Feb. 7). Under the optimistic scenario, the median return clocks in at 2.51% while under the pessimistic scenario, the median loss sits at 4.17%.
Based on this nuanced picture, traders can buy an in-the-money bull call spread for the Feb. 7 expiration date. A bull spread is a multi-leg options strategy involving buying a call option and simultaneously selling a call at a higher strike price (at the same expiration date). The idea is to use the credit received from the short call to partially offset the debit paid for the long call.
To be clear, the maximum reward is capped at the point represented by the short call strike price. However, the benefit is that the net bullish position is essentially discounted. Further, this discounting lowers the threshold to profitability (i.e., the breakeven price), improving the odds of success.
Specifically, conservative investors may consider the 18.50/19.50 bull spread for this Friday’s expiration date. Based on market data, INTC could potentially hit $19.92 by expiration. On the risk side, there is a chance that INTC could fall to $18.62. However, purchasing the $18.50 long call component may allow the spread to have salvageable value in case the bullish thesis goes moderately awry.
Of course, nothing is free in the market. For the protection above, the payout of the 18.50/19.50 bull spread is limited to 40.85% at the time of writing.
Speculators may consider the options chain expiring Feb. 28 for an even bigger reward. Statistically, bears have an advantage. However, because the bad news is likely to be priced in following Intel’s Q4 earnings, there’s a chance that INTC stock could override its usual statistical trajectory.
Assuming the bulls win out, pricing trends suggest that INTC could rise by 6.41%. If the bears gain control, the equity could decline by 7.53%. All told INTC could move to $20.68 at the top or $17.97 at the bottom.
With these forecasts in mind, investors may consider the 18/20.50 bull spread for the options chain expiring Feb. 28. The long call provides salvageable value down to $18. Conversely, should INTC stock hit or exceed $20.50, the payout is a robust 90.84%. Speculators can get even more aggressive with a $21 short-call component, which quickly brings the payout above 100%.
Is Intel a Buy, Hold, or Sell?
Turning to Wall Street, INTC stock carries an overwhelming Hold consensus rating based on one Buy, 25 Hold, and four Sell ratings. The average INTC price target is $22.02 per share, implying a 14% upside potential. While this doesn’t sound terribly exciting, even moderately bullish traders can deploy options strategies to dramatically boost their profitability on INTC stock — especially in the short term.
Hapless INTC Stock Can Deliver Investor Returns
Intel may not be the powerhouse it once was, but the market’s muted expectations could open the door for opportunistic traders. While historical data suggests a mixed outlook, the company’s tendency to stabilize after bad news hints at the potential for a near-term rebound. With options, traders can take advantage of this setup without relying on a protracted stock rally.
By structuring a well-thought-out bull call spread, investors can balance risk and reward while capitalizing on Intel’s statistical tendencies. Whether opting for a conservative or aggressive approach, the right spread offers a path to solid returns while limiting downside exposure.
