Back on April 24th we started “chipping away” at July downside puts in INTC when the stock was $32 targeting their Q2 report that we expected would have a meaningful guide down for Q3:
Trade: INTC ($32.17) Buy May / July 30 put spread for 50 cents
In late June we reiterated our view using the same strike and expiration when the stock was $31 for an average of 48 cents:
Trade: INTC ($31) Buy July 30 Put for 45 cents
And then last week when the stock broke $30 for the first time since March we closed half the position for more than a double:
Action: INTC ($29.63) Sold to Close half of the July 30 puts at 1.08 for a .60 gain
EVENT: Tonight after the close INTC will report their Q2 results, and the options market is implying a 5% one day move which is a tad rich to the 4 qtr avg of about 4.25%.
Since initiating our position, INTC has made a $17 billion acquisition, the stock has sold off 15% from its late May highs and there have been high profile earnings misses from AMD and MU and from STX, all in the PC supply chain. Sentiment has gotten very poor of late with estimates cuts and just yesterday a downgrade from Bernstein Research. It’s my sense that a miss and a mild guide down is IN the stock and if not as bad as feared the stock could see a short covering rally in the near term. That said, if the stock were to bounce I think it remains a short and will ultimately see the mid $20s in the coming months. If China is as weak as some think, then we could be further from a cycle bottom than many bulls think. So for my trade I am going to close the balance of the position into the print, and look to re-short on a relief rally.
Action: INTC ($29.68) Sold to Close half of the July 30 puts at .86 for an .38 gain (for .49 average gain)
Is there a possibility that the stock blows through key support and gets sloppy on a miss and guide down? No doubt. And this is one of the worst large cap tech charts we can find. It’s a classic head and shoulders top, with $30.$29ish as the neckline. But playing for the big one on the downside has not been a profitable strategy for the most part, especially when expressing that view with long premium strategies in a low vol environment.