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Short-Term Skeptics Rally Around Intel Corporation (INTC)

Ahead of INTC's earnings, option traders bet on a front-month stumble

by 10/11/2013 10:57 AM
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This morning, Intel Corporation (NASDAQ:INTC) was hit with a downgrade at Macquarie, but also received a price-target hike from J.P. Morgan Securities. Yesterday, meanwhile, options trading occurred at a slightly faster-than-usual pace, with especially inflated volumes among various strikes in the front-month series. The most active option was the October 22 put, where nearly 16,300 contracts changed hands.

Looking more closely at that strike, we discover the majority of the puts -- including the 10 largest blocks -- crossed at or above the ask price, suggesting they were purchased. What's more, open interest picked up 15,000 positions overnight, confirming considerable buy-to-open activity. The volume-weighted average price (VWAP) for the puts was $0.20, which means the breakeven point is $21.80, or the strike price less the VWAP.

Currently, INTC shares are sitting at $23.00, meaning they have to shed slightly over 5% in order for the option bears to start profiting. If the underlying is still trading above the strike price by the time the closing bell sounds on Oct. 18, when front-month options expire, the most the speculators will lose is the initial premium paid -- though that appears to be a relatively inflated amount, considering the stock's Schaeffer's Volatility Index (SVI) of 37% is just 7 percentage points from an annual acme.

Elsewhere, Intel Corporation (NASDAQ:INTC) is scheduled to take its turn in the earnings confessional after the close on Oct. 15. Historically speaking, the Dow component has matched or exceeded the consensus analyst estimate in seven of the past eight quarters, but still averages a 0.7% loss one week after issuing its quarterly report. For next Tuesday, Wall Street is expecting per-share earnings of 54 cents for Intel's third quarter.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis perspective, please visit our Trading Floor Blog section.


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