On Monday (here) we had some thoughts on Intel’s (INTC) nearly $15 billion purchase of Mobileye (MBLY), and on Tuesday (here), more thoughts and a trade idea. Today, shares of INTC are down for their third straight day on a rating downgrade from Credit Suisse semi analyst (from Buy to Hold), despite agreeing with “the strategic rationale” for the deal, they struggle with valuation and time horizon for recent investments to payoff.
As we highlighted yesterday, its going to take investors a little while to get their arms around the purchase price of MBLY, but if we ever get tax reform, that includes repatriation of overseas cash at favorable rates, companies like INTC making knock-out bids for assets in emerging technologies may become the norm as opposed to exception.
The technical set up in INTC for the moment looks to be at an inflection point, having recently been rejected at the prior all-time highs and now testing the uptrend that had been in place from the 2015 lows:
It appeared one trader was playing for a short term bounce. When the stock was $34.82 a trader sold to close 20,000 May 37 calls at 29 cents and bought to open 10,000 May 35 calls for $1.01. These calls now break-even at $36.01. The trader’s delta exposure remains about the same but of course on a bounce above strike the payoff is less, with half the contracts. But they low level of volatility allows a roll to much closer to the money and now a much more realistic scenario to participate in a bounce.