Event: Intel (INTC) reports Q3 earnings tonight after the close. The options market is implying almost 4% one day move which is rich to the 4 qtr average move of about 2% and the 10 year avg of about 3.5%.
Price Action / Techncials: INTC is down 11% on the year, down 35% from the 52 week highs made late last year, but up 30% from its August 24th low. Most importantly, the stock is up 8.5% since the start of October in what feels like a straight line, seemingly making a high volume head and shoulder bottom, and the last few days closing above the stock’s 200 day moving average for the first since doing so in May:[caption id="attachment_57624" align="aligncenter" width="600"] INTC ytd chart from Bloomberg[/caption]
Our Positioning: On Sept 22nd when INTC was $28.65 (here), we pressed a short thesis on the stock, as we felt the weakness in pcs and smartphones were unlikely to abate despite back to school, Win 10 upgrade and the impending holiday selling season. And we thought the technical set up was weak. We were obviously wrong, even if it proves we were just early. In trading, early = losses, which no matter the reason = wrong.
We are nothing if not persistent (or some may call stubborn). The Oct 28.50/25.50 put spread we bought is now worthless. Aside from market strength this month, poor sentiment and a technical breakout, I see few reasons why INTC should have rallied into tonight’s earnings.
I still contend that long term technical set up looks horrid, and I doubt current fundamentals would support a break of the downtrend that has been in place since late last year:[caption id="attachment_57627" align="aligncenter" width="600"] INTC 5 yr chart from Bloomberg[/caption]
New Trade: INTC ($32.25) Bought Dec 32/28 Put Spread for $1
-Buy to open 1 Dec 32 put for 1.30
-Sell to open 1 Dec 28 put at .30
Break-Even on Dec Expiration:
Profits: up to 3 between 31 and 28, with max gain of 3 at 28 or lower
Losses: up to 1 between 31 and 32 with max loss of 1 above 32
Rationale: We could be very wrong, and maybe the recent buyers know something we don’t but there have been very few data points of late that suggest that PC shipments for 2015 will come in above expectations, and are likely still too high. We like the risk / reward given our negative bias to the PC supply chain.