In early February we took a look at Intel (INTC) after a sharp drop from recent highs. We zeroed in on what could be a boucne from support and detailed a trade to take advantage of a move back to or near those highs. Here’s what we said at the time and the trade idea. From Feb 6th:
With the stock at $43.40, down from an intraday high of $50.85 on January 29th, I think there is a favorable risk-reward from the long side. To my eye there is good technical support between the recent lows just below $43 to the Q3 earnings gap near $41.50.
Trade Idea: INTC ($44) Buy the April 45 / 50 Call Spread for 1.50
- Buy 1 April 45 call for 2
- Sell 1 April 50 at .50
The stock has indeed followed through on its bounce and is back at its highs. With the stock now 50.70 this trade is above its short strike and now nicely profitable, worth 3.65, vs the original 1.50 at risk. That’s more than a double and can only be worth 1.35 more if the stock closes here or higher on April expiration. That’s a lot of time and the broader market is certainly continuing its volatile moves day to day. Therefore I think it makes sense to take some or all of the profits off the table and if sticking around for a breakout do so with a roll that doesn’t risk too much of the current profits.
For those happy with these gains the trade can simply be closed. For those looking to book profits and play for a breakout here’s a roll idea:
INTC (50.70) Sell to close the April 45 / 50 Call Spread for at 3.65 for a 2.15 profit.
Roll: INTC (50.70) Buy the April/May 52.5 call calendar for .60 (booking 1.55 in profits)
- Sell 1 April 52.5 call at 1.30
- Buy 1 May 52.5 call for 1.95
Breakeven on April expiration: This is mildly bullish until April expiration, with a target a little less than $2 higher than the current stock price. If the stock closes at or below 52.50 on April expiration the May calls can be turned into a spread, further reducing risk.
Rationale – INTC is set to report earnings the week after April expiration. This sells April to buy May, which captures the event. From an outright standpoint this is a decent trade, but as a roll from the previous position it makes even more sense as it takes deltas (and profits) off the table in case the stock, (or market) takes a breather after this rabid rebound from recent lows.