Good Intel: Trader Bets Big on Chips
On Monday, Intel is finding favor with analysts and traders alike.
Intel started off Monday morning well, leading the S&P 500 as well as the Dow Jones Industrial Average with a nearly 4 percent increase off the open. This after FBR Capital upgraded its market outlook for the chipmaker from market perform to outperform.
Many expect Intel to enjoy a strong and increasing market share of tablets and handhelds for quarters to come. With an advantage in chips in the stagnant PC market, Intel is looking to gain a greater footing in the mobile and tablet market, with Samsung's commitment to use Intel processors in a new Android tablet.
That adds a significant spark to Intel's fire, as Samsung has the No. 2 market share in tablets. Its largest competition in the tablet space is Apple, whose market share is twice as large. However, Samsung is trying to capture more of this market through size options and capabilities, as opposed to Apple's strict two-size tablet policy.
(Read More: Intel Scores Major Win in Samsung Galaxy Tablet)
This deal also seems to be wind in the sails for Brian Krzanich, Intel's CEO of one month, who commented that the company had been "slow to the mobile market" and displayed a gung-ho approach to playing catch-up. Within his first month, he oversaw the acquisition of ST-Ericsson's satellite navigation chip business unit.
This is the first step toward gaining a foothold in the hot mobile chip market. Intel holds around 1 percent of this markets but certainly has the capability to become a big contender, given that it has as much as 87 percent of the chip market share in similar products, such as laptops.
Desktops represent most of Intel's chip business, and the weak PC market is expected to stabilize this year. Intel has the advantage of a huge market share in the PC business, and this foothold should increase with market improvement.
Intel is focused on playing catch up at a breakneck pace, spending seven times as much in research and development as competitor Qualcomm. It is also outspending Taiwan Semiconductor Manufacturing, the largest chip foundry in the world, to prepare for mass production. All in all, Intel is set and primed to grow.
These sentiments may have led to the bullish outlook on the stock, which is up more than 22 percent year-to-date. Monday morning, a trader sold 9,342 July 24-strike puts for $0.41 per option. Selling put options gives the trader the ability to speculate that the underlying stock will remain around or above its current price. This trade will make money so long as Intel's stock price does not decrease by more than 5 percent.
Looking at Intel's chart, there appears to be a resistance level of $24.50 that was broken this morning. This suggests that the price is going to trade comfortably higher than the $23.59 breakeven for this trade.
Most analysts have set price targets of between $27 and $29, but this trader is being more conservative. Rather than making a big bullish bet on the stock, the trader is simply expecting a modest rise with a floor below the old resistance level.