Stutland: Is Intel Setting Up to Sell-Off?
This is a Guest Blog from CNBC Contributor Brian Stutland.
On Friday, shares of Intel rose about 1% to $22, and the stock saw heavy option trading ahead of earnings this Thursday. The biggest trade of the day was the purchase of 60,000 January 2014 20-strike puts for $1.63 each. The trader did this with the stock at $21.95, and it is a bearish trade that will profit if Intel is below $18.37, or 16% lower, a year from now.
This position likely hedges a stock holding, and will effectively stop the trader out on the losses suffered on 6,000,000 shares if the stock dives below $18.37.
Intel is projected to report Earnings Per Share of $0.45 – a decline of 29.7% year-over-year. Recent sentiment in the stock has been bearish, with the average analyst earnings target moving down $0.09 over the last quarter. If Intel does miss earnings targets after they have already been substantially reduced, the stock could sell off quite a bit, which might be why this trader wants to own a long-term hedge such as this.
Most Wall Street analysts have a "hold" rating on the stock, with the number of "buys" increasing slightly last quarter. Growth prospects for Intel weakened in the last half of 2013, and the stock's performance (down about 50% from 2012's highs) has followed suit. The trend for the past few months has been down, through Intel has rallied a bit since November. The earnings this week are likely to dictate sentiment on the stock over the coming months, which means that a poor earnings report could send the stock back on its downtrend.
Long-term puts like this have little decay in the short run – in other words, they will not lose much value as a few days pass – and they will offer a lot of protection if the stock gaps down on Friday morning.
Disclosures: I do not have any position in the stock.
Brian Stutland is Managing Member of Stutland Equities and a contributor to CNBC's "Options Action."
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