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Option Players Aren't Buying Intel Corporation's (INTC) Rally

Intel Corporation bears are betting on a pullback from new highs

by 5/30/2014 1:39 PM
Stocks quoted in this article:

Intel Corporation (NASDAQ:INTC) is 0.8% higher at $27.17, after earlier notching a near-two-year high of $27.30. Nevertheless, options players are once again gambling on a short-term retreat for the blue chip, with intraday put volume running at three times the norm.

More specifically, short-term options are picking up steam, as the equity's 30-day at-the-money (ATM) implied volatility (IV) is up 4.8% at 14.2%. Attracting notable attention is the weekly 6/6 27-strike put, where more than 6,600 contracts have traded. Almost all of the puts crossed on the ask side, IV is trending higher, and volume exceeds open interest at the strike -- collectively pointing to buy-to-open action.

By purchasing the puts at a volume-weighted average price (VWAP) of $0.14, the buyers will make money if INTC is perched south of $26.86 (strike minus VWAP) at the close next Friday, when the options expire. In fact, the buyers' reward will increase the closer INTC moves to zero. Risk, meanwhile, is limited to the initial premium paid for the puts, should the shares extend their journey north of $27 through next week.

Despite today's 30-day ATM IV pop, INTC's short-term options are attractively priced right now. The stock's Schaeffer's Volatility Index (SVI) of 13% stands just 2 percentage points from an annual low, suggesting front-month options are inexpensive, from a volatility standpoint.

As alluded to earlier, this isn't INTC's first rodeo with option bears. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.77 sits in the top quartile of its annual range, reflecting a healthier-than-usual appetite for long puts of late. Of course, considering INTC's quest for new highs, some of this activity -- especially at out-of-the-money strikes -- could be attributable to shareholders looking for a hedge.

Among the brokerage bunch, sentiment is less convoluted. Eighteen analysts maintain "hold" or worse opinions of INTC, compared to 11 harboring "strong buys." Likewise, the consensus 12-month price target of $26.92 represents a discount to INTC's new high.

In the same vein, short interest accounts for 177.7 million INTC shares -- further evidence that skepticism remains prevalent. In fact, at the stock's average daily trading volume, it would take nearly eight sessions to repurchase all of these pessimistic positions.

Technically speaking, since bouncing off support just north of $19 in November 2012, INTC has rallied more than 41%, with recent pullbacks contained by its 10-week and 50-week moving averages. What's more, the security has outperformed the broader S&P 500 Index (SPX) by more than 7 percentage points during the past three months.

Meanwhile, Intel Corporation's (NASDAQ:INTC) fundamental future also looks promising. The company just unveiled a new "smart shirt" at the Code Conference -- slated for sale sometime this summer -- and Intel-based tablets will hit shelves next month. Should the equity continue to shine on and off the charts, an unwinding of pessimism in the options pits, a flood of bullish brokerage notes, and/or a short-squeeze situation could put the wind at INTC's back.

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