Today is Short Loser Ol’ Tech Day at RiskReversal, Get Your INTC, MSFT & DELL On

by Dan January 18, 2012 1:47 pm • Commentary

INTC and MSFT, 2 of the most levered names in the technology universe to PC sales report tomo after the close.  Below please find a quick preview of what the options market is expecting, and what the street is expecting for earnings and revenues, and of course my quick take on both of the names heading into the prints.  Also I think DELL could be an interesting way to play both earnings events, as all 3 companies are uniquely tied at the hip as it relates to PC sales.  See trade ideas in DELL at the bottom.  


INTC: the options market is implying about a 3.7% move following earnings vs its 4 qtr avg move of about 3.3%


Q4: .61 eps and $13,722b in revs

Q1: .51 eps and $12,759b in revs

2012: 2.37 eps (flat yoy) and $55,259b in revs (up 3% yoy)

MY TAKE: Q4 likely “baked into the cake” at this point and it is all about Q1 guidance.  The company pre-announced a revenue miss in Mid Dec and the real question is if they can make any of it up in Q1 that would cause upside guidance.  Given the rally today in semiconductor shares on the heels of LLTC report and guidance I would suggest that the market has spoken.

I originally entered by my INTC short in early Dec prior to TXN‘s Q4 mid qtr update as I thought there was a decent chance that Q4 was gonna suck, well we got disappointments out of both and the stocks are back above early Dec levels, so at this point your guess is as good as mine what happens.  I remain long some of the Jan 24 puts that I had initially bought after taking profits on half of my position in mid Dec.  I will stay long them into the print and I have been shorting the stock on an intra day basis.


MSFT: the options market is implying about a 3% move following earnings vs its 4 qtr avg move of about 2.25%


Fiscal Q2: .76 eps and $20,929b in revs

Fiscal Q3: .61 eps and $17,522b in revs

Fiscal 2012: 2.73 eps (up 3% yoy) and $74.553b in revs (up 7% yoy)

MY TAKE: Given INTC’s revenue short fall and MSFT’s comment last week at CES that Q4 PC sales were likely worse than expected, again I think a weak quarter is “baked in the cake” for MSFT.  And now the real question will be fiscal Q3 guidance and for the full year 2012.  At this point we have gotten results from ORCL in Dec that were disastrous and SAP last week that were actually pretty decent.

MSFT obviously has a great deal of exposure to fairly challenged verticals and geographies, ie govt enterprise, consumer and Europe.  Investors are focused on the company’s mobile plans and the launch of new smart phones with NOK on their new OS.  This will definitely be a total zero, but in the meantime, investors got geeked up during CES that there may be hope for MSFT yet in mobile.

I am long the Jan 26 Puts (which are basically worthless) and the Jan 27.50 Puts that are very much still in play with the stock at 28.20.

With the stock up 8.5% ytd I think any guide down for the out qtr or the year should cause the stock to retrace a bit of the gains so far this year.  Again when I bought the puts, vols looked cheap and the stock had just gone parabolic right out of the gates in the new year.


Obviously I have some skin in the game when it comes to INTC and MSFT heading into tomorrow nights report, but in the off chance that one or both stocks guide down, the best way to play could be short DELL which is up 12% ytd.

DELL ($16.40) doesn’t report their fiscal Q4 until Feb 21st, after Feb expiration.


Not a ton to do in Jan expiration, but the Punt of all Punts could be to BUY the DELL Jan 16 Puts for .04 ( I did, I am a punter) if you thought there is a good likelihood that INTC or MSFT disappoints…..The break-even on the downside is 15.94 down 2.6%, a bit more than what the stock is up today…..The only issue is that you only have 2 days to earn this out, so it is a pure event trade where there is a strong likelihood that you will lose all of the premium that you spend, thus a punt.

If that seems a bit too speculative, but the thesis makes sense you could look to Feb expiration where the options remain cheap as they do not included the earnings event.  30 day at the money implied vol in Feb is offered at about 27 vs the at the money IV in May (the next expy that is listed) offered at about 31.50.


DELL Bought The Feb 16/15 Put Spread for .21

-Bought 1 Feb 16 Put for .34

-Sold 1 Feb 15 Put at .13

Break-Even on Feb Expiration:

Profits btwn 15.79 and 15 make up to .79, max gain 15 or below make full .79

Losses btwn 15.79 and 16.00 lose up to .21 with max loss of .21 above 16.00