INTC Reports Q1 Earnings Tonight- Are You As Excited as Me? Or Is That Just a Semi In Your Pocket?

by Dan April 19, 2011 7:58 am • Commentary

INTC reports Q1 earnings tonight after the bell, the options market is implying ~3.5% move (this obviously crept a little yesterday) vs the 8 qtr average of ~2.9%.

-expectations are fairly low going into the quarter, as large cap tech’s performance (or lack thereof) this year isn’t helping sentiment towards the once fierce leaders, as CSCO, HPQ, GOOG & RIMM have all had earnings mishaps this year leading to dramatic sell offs following earnings.

-Bulls find solace in the stock’s dirt cheap valuation at less than 10x the consensus 2011 estimate of $2.02, but the problem is they’re down 2% yoy and only expected to be up high single digits in 2012… how much do you pay for that sort of growth?

-I actually heard someone on CNBC today say that one of the reasons they are bullish on the stock is their $7.6 billion acquisition of MFE from last summer.  Wow, that was a first. I happen to think it is one of the things that has caused the stock to massively under-perform the NDX by almost 30% since August 2010.   Chart below shows the genius of the deal.

[caption id="attachment_1142" align="aligncenter" width="300" caption="8 month Chart showing INTC (red) under-performance vs NDX (yellow)            Livevol Chart"][/caption]

MY VIEW: I can’t come up with a single reason to be a hero here and step in front of this one, this stock is definitely going to 18.00, and  probably lower at some point this year, it might as well do it now as they have a quasi “mulligan” on Japan disruption.  TXN‘s report last evening should offer little enthusiasm for a sustained chip recovery in what is very close to an already seasonally weak period now plagued by supply chain disruptions for a a couple more quarters.   I am willing to bet my cat that INTC will surely exercise the Japan Put and the question now what other crap do they bundle in there.  (actually would be happy to lose this one as I am allergic to the cat and she has an annoying thyroid problem which has cost some $$)

-Technically the chart is in what appears to me to be the final stage of a head and shoulders top not too far away from that neckline at about 19.

[caption id="attachment_1143" align="aligncenter" width="300" caption="2 yr INTC chart showing Head and Shoulders Top         Livevol Chart"][/caption]


1. Express Intermediate Term Bearish View with Out of The Money Put Spreads, Look to August to Capture 2 Potentially Weak Earnings Events.

-INTC (stock ref 19.62) BUY the AUG 18/ 16 Put Spread for .38

-Buy Aug 18 Put for .60 and

-Sell the Aug 16 Put at .22


Downside: btwn 18 and 17.62 lose up to .38, btwn 17.62 and 16 make up to 1.62 and BEST CASE stock 16 or below and make the full 1.62 or 8.25% of the underlying.

Worst Case: stock 18 or above and you lose the .38 you paid in premium

TRADE RATIONALE: Outright purchase of options are expensive, at the money Puts are trading across the term structure almost 4 points higher than the 30, 60 and 90 day realized vol.  If INTC sold off a bit below 19 post earnings, vol will stay bid and this spread should carry decently throughout the summer.

2. Short Term Bearish bet into Earnings- BUY Apr21 weekly Puts

INTC (stock ref 19.62) BUY the APR21 weekly 19 Puts for .13

BREAK_EVEN on FRIDAY APR21 Weekly Expiration: stock btwn 18.87 and 19 lose up to .19, above 19 lose .13, BEST CASE stock below 18.87 (down 4%) and have unlimited (to zero) profit potential.

TRADE RATIONALE: This is a total flyer, you have to have conviction that the stock will get hit and hard right after earnings, because if it doesn’t these puts will decay very fast.  A 2 day play for a 4% move with an event that is well telegraphed especially after TXN’s earnings and guidance doesn’t seem like a high probability play, but if you are dead set on it this could be a decent risk reward…..