Intel Corporation Bears Prepare for Months of Decline

Schaeffer's Investment Research
  JUL 02, 2013 3:18 PM

Bearish traders target INTC's July 24 and September 21 puts.

 


During the past 10 weeks, Intel Corporation (NASDAQ:INTC) speculators have bought to open 171 calls for every 100 puts, resulting in an International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) 50-day call/put volume ratio of 1.71. This ratio ranks higher than 91% of other such readings taken throughout the year, meaning speculators have been snatching up calls over puts at a near annual-high rate. With that being said, INTC experienced a change of pace in its options pits yesterday, where 63,000 puts changed hands, compared to 38,000 calls -- the latter of which is only 45% of the average daily norm.

Two INTC options receiving attention were the in-the-money July 24 put and the out-of-the-money September 21 put, where 18,813 and 6,218 contracts crossed, respectively, signifying INTC's options players expect the stock to trek downward over the next few months. Moreover, the majority of the contracts at both strikes went off at the ask price, while each options' open interest added a heavy amount of new positions overnight, suggesting that the activity was of the buy-to-open nature.

In order for yesterday's front-month put buyers to profit from their play, INTC has to step down a mere 1.7% from its current perch of $23.89, to finish below the breakeven price of $23.48 -- strike price less the volume-weighted average price (VWAP) of $0.52 -- by the close on July 19. Likewise, for the September put buyers to profit, INTC has to tumble 13.2%, to finish below the $20.73 mark (strike price minus the VWAP of $0.27) by the close on Sept. 20.

Since the start of 2013, INTC has grown by 15.9%. However, within the past month, the stock has shaved off 1.6%, and has underperformed the S&P 500 Index (INDEXSP:.INX) by almost 5 percentage points. Still, should INTC rebound, and end north of the 24 and 21 strikes by their respective expiration dates, yesterday's put buyers will stand to lose the initial premium paid per contract.

Stepping outside of the options pits, short interest accounts for 4.62% of INTC's available float, hinting that a healthy number of stock traders expect the stock to drop. Therefore, it is possible that the withstanding trend toward calls (as mentioned earlier) may be due to short sellers hedging their bearish bets.

Fundamentally, Intel Corporation is scheduled to enter the earnings confessional after the market closes on July 17 -- two days prior to the front-month expiration date -- and analysts are expecting a report of $0.39 per share for the company's fiscal second quarter, a 27.8% decrease from the prior year's 54 cents per share. Not to mention, during the last eight quarters, INTC has lost an average of 0.2% the day after its announcement.

This article by  Milissa Hudepohl was originally published on Schaeffer's Investment Research.

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