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Intel's New Low Doesn't Faze Bullish Traders

Speculators eye INTC's January series of calls

by 11/8/2012 2:05 PM
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Intel Corporation (NASDAQ:INTC - 21.01) sank to a new annual low of $20.89 earlier today, but that hasn't kept bullish options traders at bay. Approximately 73,000 calls have crossed the tape so far, marking a 47% increase over the equity's expected intraday call volume, while more than tripling the number of puts exchanged.

The front-runner by a landslide has been the January 2013 21 strike, which has seen nearly 38,800 calls change hands at a volume-weighted average price (VWAP) of $1.01. The majority of these at-the-money contracts traded at the ask price, pointing to buyer-fueled activity. Since today's volume exceeds current open interest levels -- along with the fact that implied volatility was last seen 1.5 percentage points higher -- we can assume that new bullish bets are being placed here. By purchasing these calls to open, traders are counting on INTC to rise above $22.01 (strike price plus VWAP) by the time January options expire. However, even if the security fails to trek north of this level, the most these speculators stand to lose is the net debit paid.

This penchant for calls over puts mirror's INTC's current trend. Per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity sports a 10-day call/put volume ratio of 2.10 -- confirming calls bought to open have more than doubled puts during the last two weeks. This ratio ranks higher than 80% of comparable readings taken within the past year, indicating traders have been picking up calls over puts at an accelerated clip.

However, INTC isn't completely free of bearish speculation. Short interest on the computer concern climbed by roughly 5.6% during the last two reporting periods, and now accounts for a healthy 3.7% of the equity's available float. This implies that some of the recent call buying could be the work of short sellers looking to hedge their pessimistic positions. Either way, it would take four sessions to repurchase these shorted shares, at the stock's average pace of trading.

Meanwhile, the majority of analysts covering INTC maintain an air of caution toward the equity. Only 12 brokerage firms have doled out "buy" or better ratings, versus 23 "holds" and three "sell" or worse suggestions.

This skepticism toward INTC isn't without merit, considering the security's year-to-date decline of more than 13%. The equity has also lagged the broader S&P 500 Index (SPX) by over 21 percentage points during the past 60 days. What's more, the stock is on pace to finish yet another week below its 10-week moving average, which has served primarily as resistance since early May. Still, the shares only need to tack on an additional 4.8% prior to January expiration in order for today's bulls to secure a profit on their call positions.


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