Options Update: Intel Put Volume Spikes as Shares Breach Key Technical Support
While Intel’s rival Advanced Micro Devices
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However, Intel’s
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With INTC reliant on PC and server sales, the majority of which run MSFT’s Windows operating system, the decline in corporate spending and fears of a consumer-led recession are sure to have a profound impact on the company.
Turning to today’s options activity for INTC, the stock has seen more than 13,900 puts change hands so far. The spike in volume nearly doubles the security’s average daily put volume, and has placed INTC on today’s Intraday Volume Explosion List. The majority of this volume has traded at INTC’s October 17 put, catching my eye today.
Anatomy of an Intel Put Position
Looking at the chart above, we can see that most of today’s October 17 put activity on INTC has traded at the bid price. This preference for trading options at the bid price could indicate that we are seeing sell-to-open put volume on the shares, but open interest at this front-month strike easily outstrips today’s activity. As such, it is difficult to determine the true nature of this heavy volume at the October 17 strike.
Most likely, we are seeing the closure of existing put positions, as traders take profits following the stock’s sharp decline. In fact, if a trader had purchased an INTC October 17 put on Friday, he could have pocketed a descent profit. This option closed at $0.69 on Friday, meaning that a trader could have banked a gain of about 9% in just 2 days given the options current value near $0.75.
On the other hand, with INTC struggling with potential technical resistance at the 17 level, a put-sell position looks highly unlikely. Opening a new INTC put position (i.e. buying to open) looks like it could be a rather profitable trading, however. Returning to the volume chart above, a trader could have purchased 1,036 INTC October 17 puts at 10:22 a.m. this morning. The total outlay for such a trade would be $97,384 — ($0.94 * 100)*1,036 = $97,384. For this trade to reach breakeven, INTC would need to fall about 5% from yesterday’s close to $16.06 per share. We arrive at this by subtracting the cost of the option ($0.94) from the strike of the purchased 17 put ($17 – $0.94 = $16.06). The total loss for this position is limited to the initial investment of $97,384.
So, would it be better to just close out put positions on INTC, sell a 17 put in hopes of a rebound, or initiate a new short position by buying an October 17 put? Clearly selling an in-the-money put position has its risks (such as the unlikely event of having the option immediately exercised). Closing out put positions locks in a meager gain of about 9% if the trade was entered on Friday, before the most recent plunge. However, a new short put position has the most potential in the current market environment. Let’s see if INTC’s technical picture or sentiment backdrops provide any clues on the potential for the shares to extend their poor technical performance during the next week before the options expire on October 17.
Getting Technical
From a purely technical standpoint, a short position on INTC has real promise. The stock is off more than 36% since January 2008, with the losses accelerating in recent weeks. In fact, INTC has plunged more than 32% since hitting a near-term peak in mid-August. During this time frame, the shares have been pressured steadily lower by their 10-day and 20-day moving averages. Sealing the deal for an October 17 put position is that the equity plowed through long-term support at the 17 level during Monday’s fire sale. This plunge not only places the option in the money, but it also placed INTC below some potentially staunch long-term resistance.
The Sentiment Drivers
The case for a short position on INTC gains more traction from a contrarian standpoint when we examine the stock’s sentiment backdrop. First, the equity’s Schaeffer’s put/call open interest ratio (SOIR) of 0.53 indicates that call nearly double puts among near-term options. What’s more, this ratio ranks below 92% of all those taken during the past year, indicating that investors have been more optimistic toward the shares only 8% of the time in the prior 52 weeks. If these bulls are forced to capitulate to INTC’s weak price action, it could increase selling pressure on the security.
Wall Street is also heavily bullish on the stock, as Zacks.com reports that 18 of the 29 analysts following INTC rate the shares a “buy” or better, with no “sell” ratings to be found. Should the downturn in corporate technology spending or fears of a consumer-led recession gain traction on Wall Street, we could see these bullishly aligned brokerage firms downgrade INTC, thus fueling gains in an October 17 INTC put position.
The Verdict?
The factor to keep in mind here is that the market has been extremely volatile in recent weeks. It seems that the major market indices are just as likely to surge 1%-2% as they are to fall 1%-2% on any given day. As such, while the technical and sentiment indicators line up solidly in support of an INTC October 17 put position, there are risks inherent in the current market environment. That said, the technology sector looks particularly weak at the moment, and any upside in the broader market could have a muted carryover for INTC.
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Copyright Schaeffer’s Investment Research. www.schaeffersresearch.com.