Stocks quoted in this article:
Another Intel Corporation (NASDAQ:INTC) bull has expressed his short-term optimistic view by simulating a long stock position through the purchase of calls and the sale of puts. By executing this split-strike synthetic long stock strategy, he commits less premium for a similar risk/reward profile as owning the stock outright.
Earlier today, two symmetrical blocks of 7,000 contracts changed hands in the front-month series. It appears as though the September 20 put was sold to open at the bid for a credit of $0.05 apiece, while the September 25 call was purchased to open for a relative pittance, or $0.02 each contract.
At expiration, if INTC is trading between the strike prices, the trader keeps the $0.03 premium collected (which translates to a net sum of $21,000 on 7,000 contracts). North of the 25 strike, however, gains are theoretically unlimited, just as they would be with a traditional stock purchase. Below the breakeven price of $19.97 (the put strike less the net credit), losses will mount, limited only by the zero mark.
Currently trading at $22.05, INTC needs to surge 13.4% in the next three weeks in order to hurdle the 25 strike by September expiration. Still, provided the shares stay put -- or at least don't fall 9.4% to breach breakeven -- the spread trader will take home a modest profit.
Year-to-date, Intel Corporation (NASDAQ:INTC) hasn't been making any big moves overall, and is up just about 7%. (Today, the stock is sitting hear breakeven, despite an upgrade to "buy" from "hold" at Argus.) Over the last week, however, the security's 30-day, in-the-money implied volatility measure has increased from 20.3% to 23.2%, hinting at rising expectations for future volatility in the underlying shares.