3rd Update: INTC: Too Far Too Fast, Low Premium Bearish Trade Through Dec Exp

by Dan November 22, 2011 3:22 pm • Commentary

3rd Update Nov 22nd 2011 at 3:23pm: With INTC down another 1.25% todat at 23.28 I am selling the other half of the Dec 24/22 put spread that I paid .35 for last week at .82.  I remain long the Dec 23/22 put spread that  .19 for now worth .30.

Update Nov 21st, 2011 at 10:50am: With the stock down about 7.5% in 4 trading days since buying the Dec 24/22 Put Spread for .35, the spread is now worth .72…….So you guys know the drill, I am going to sell half for more than double my cost and let the other half ride.   Remember I am in the business of hitting singles and doubles and everytime I can take my

 * sold half the position at .725 avg Nov 21st at 11am

Update Nov 15th 11:34am: I am being a little undisciplined here, but INTC is up about 2.5% since putting this trade on last week and now the stock is butting up against its 52 week highs made last month….I want to add to this short play but now use a slightly higher Put strike. Here’s the new trade:

TRADE: INTC (24.92) Bought the Dec 24/22 Put Spread for .35

-Bought the Dec 24 Put for .50 and

-Sold the Dec 22 Put at .15

Break-Even On Dec Expiration:

Profits btwn 23.65 and 22 make up to 1.65 and below 22.00 make full 1.65

Losses btwn 23.65 and 24 lose up to .35 and above 24 lose full .35

TRADE RATIONALE: Last week I thought that INTC’s out-performance should start to abate in an up or down market, and it hasn’t, but I still feel this way and want to average into my original position (below) which is now lost 1/3 of its value…..So now I am long the Dec 24 and 23 Puts and I am short the Dec 22 Puts on a 1 up basis, I am not naked short puts.  What i would like to happen now is have the stock come in and sell the Dec 23 Puts for more than I bought them for and stay long the Dec 24 puts on a ratio to the Dec 23 puts that I am short…..But that’s all some wishful thinking…..In the meantime I just want the stock to go lower.

-Wall Street analysts fairly positive on the stock with 32 Buys, 17 Holds and only 5 Sells with an avg 12 month price target of 27.05.

-Stock may appear cheap trading at about 10x next years earnings estimates, but with eps and revenue growth  expected at only 5% this may be trading at premium pe to growth.

-When the company beat and raised for Q4 in late October at the beginning of the Q3 earnings cycle, estimates for INTC had be somewhat subdued to the  apparent weakening demad for pcs…..This is no longer the case after a string on consecutive beat and raises and expectations might have gotten a bit ahead of themselves as we head into a seasonally slower period.

MY TAKE: I Want to get short the name but use a structure that has been working for me on a tactical basis…..I want to use tight $1 wide put spreads and look to Dec expiration.  The stock is up almost 28% since early October nearly doubling the performance of the SPX.  I feel in the near term the stock could pull back 5-10% in the coming weeks as investors may look for my beta into year end if looking to play a year end rally.

– the chart is sitting within a few % of the multi year highs and obviously reflects a good bit of enthusiasm.

1 Yr INTC chart from Bloomberg


So here’s the trade: 

TRADE: INTC ($24.37) Bought the DEC 23/22 Put Spread for .19

-Bought 1 Dec 23 Put at .39

-Sold 1 Dec 22 Put at .20

Break-Even On Dec Expiration:

Trade Profits btwn 22.81 and 22.00 make up to .81, below 22 make full .81 or 4x your money

Trade suffers losses of up to .19 btwn 22.81 and 23 and max loss is .19 above 23.

CONVICTION LEVEL is medium, but as evidenced by the out of the money, low premium tight spread I am not going all in here, and in some ways i want to spread out some shorts where i risk a little to make a lot if we get a 10% pull back in the name…..