New Trade INTC: Revisiting Near Term Bearish Thesis, Despite the Stock’s Defensive Appearance

by Dan August 1, 2012 3:12 pm • Commentary

Back on July 3rd, when INTC was ~$26.80, I bought a tight $1 wide Put Spread to express a near term bearish view as the company approached their Q2 earnings event.  The stock sold off prior to the company’s Q2 revenue miss and guide down, so I took the money and ran thus avoiding the risk into the event (read below).

At this point I want to revisit the bearish thesis, but in a relatively low risk manner, and obviously with defined risk.  We have had a handful of data points since INTC’s July 18th Q2 earnings that suggest that the PC market is weak (STX miss, AAPL weak pc units), and even in the face of the Windows8 launch in the fall, 2H PC sales could start to show the ever increasing signs of Tablet cannibalization in a meaningful way.

Potential Negative Catalysts:

Over the next month we will have earnings announcements from DELL (8/16) and HPQ (8/22) and these are likely to be dismal, and as we head into early September, we will have a handful of broker sponsored Tech conferences and Semi Mid Qtr Updates from the likes of TXN on Sept. 11.  If INTC’s qtr is tracking far worse than the downbeat guidance they just gave, early Sept is a likely time to pre-announce if they are inclined to do so.

1 CAVEAT: INTC is a fairly cheap stock trading at about 10x next years expected earnings, and the almost 3.5% dividend yield places at the very high end of most yielding hunting investors list in the tech space.

Technicals: The chart is at an interesting spot in my opinion, still in a meaningful downtrend, and sitting right on some huge support at $26 and bumping up against its 200 day moving average.

[caption id="attachment_15134" align="aligncenter" width="589" caption="INTC 1 Yr Chart from Bloomberg"][/caption]
MY TRADE:  INTC ($25.94) Bought the Sept 25/23/21 Put fly for .28
  • Bought 1 Sept 25 Put for .52
  • Sold 2 Sept 23Puts for a total of .30 (.15 each)
  • Bought 1 Sept 21 for .06

Break-Even on Sept Expiration:

-Profits btwn 24.72 and 21.28 of up to 1.72, max gain of 1.72 at 23.00, profits of up to 1.72 btwn 24.72 and 23, and profits of 1.72 btwn 23 and 21.28.

-Losses of up to .28 btwn 21 and 21.28 and btwn 24.72 and 25, with max loss of .28 below 21 and above 25.


TRADE RATIONALE:  I think there is a lot of money hiding out in stocks like this, where the fundamentals are quite poor and about to get worse.  I want to make a defined risk relatively low premium play that the company’s Q3 deteriorates quickly and that the street comes to this conclusion after the series of catalysts that I named above.  Also I believe investors buying tech stocks, or pc or peripheral names for the big Windows8 upgrade cycle will be sadly disappointed, it won’t exist.