Trading the Intel Analyst Call with Options

05/11/2010 9:21 am EST

Focus: OPTIONS

Intel (INTC) is holding its annual analyst day today and according to Briefing.com, Caris and Company is expecting “CEO Otellini to be upbeat on 2010 prospects for consumer and enterprise end demand and the potential for new categories such as tablets to augment netbooks” in the ever-expanding universe of products which Intel chips serve. Briefing sums up the Caris comments thus: “Strong product cycles in all product groups, compelling 2H10 end demand and financial catalysts, cheap valuation and a rich dividend yield (~3.0%) are compelling positives in an uncertain market.”

INTC bulls may find this cash-secured put strategy attractive. Selling the May 22 put for 40 cents offers the chance to collect premium income with only 11 days to options expiration. And if the stock falls below $22 before then, you can be assigned and forced to buy the stock at an effective cost of $21.60.

INTC Cash-Secured Put Trade Details (Prices as of mid-day Monday—be sure to adjust for current pricing):

Intel shares are trading at $22.27, up 4.5% by mid-day Monday.

Cash-Secured Put:

  • Sell the May 22 put (out of the money) for $0.40 per contract (or better)

  • Net credit of $0.40 ($40 per lot)

  • For every contract, set aside $2,160 in cash: [(22 – 0.40) x 100]

Securing the sold put with cash means the capital is available to buy the shares if assigned. At this point, you’ll have purchased INTC shares at an effective price of $21.60, or roughly 3% less than they are currently priced.

Profit/Loss Details

Maximum Potential Profit: $0.40 per contract (the premium collected) minus Click Herecommissions. (This profit is for the short put option only and may change if the investor opts to buy the stock at $21.60)

Maximum Risk: $21.60 (the strike price minus the premium collected). Return on risk for this trade is approximately 1.9%

Breakeven: $21.60 (the strike price minus the premium collected)

By the Staff at ONN.tv

ONN.tv experts Jud Pyle and Kevin Cook provide premium trading alerts that investors can access and follow with commentary and strategy lessons. Sign up for this free service and start trading with the pros!

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