The SMH semiconductor ETF ended Wednesday's session at a brand-new all-time closing high, and options traders are betting that the space can break out to even bigger gains when Intel reports earnings after the bell Thursday.
Intel comes into Thursday's report up just 2% on the year, down nearly 20% from its own all-time highs, which it hasn't been able to recapture since the tech bubble of the early 2000s. Wednesday's options activity didn't quite signal a return to those lofty levels, but it did suggest that Intel could make for a good catch-up trade in the semi space when its earnings report crosses the wire.
"We saw calls outpace puts by [a ratio of] about 2 to 1 on above average volume in Intel, and right now, the options market is implying a move of about 5% higher or lower by the end of the week," Michael Khouw, CIO of Optimize Advisors, said Wednesday on "Fast Money."
That's a slightly smaller implied move than the 5.5% Intel has averaged over the last eight quarters, but much of Wednesday's activity fell on the bullish side, with the most popular contract calling for fairly significant upside, Khouw said.
"The most active opening activity that we saw in the weekly options that expire this coming Friday were the 61-strike calls," said Khouw. "Those were trading for about $1.50, so it could be that options traders are taking advantage of the lower-than-average options premiums to risk 2.5% of the stock price [to bet that intel] could break out of the languishing performance that we've seen over the last four to six weeks."
Those contracts break even at an underlying stock price of about $62.50, which would represent a rise of about 2.5% from Wednesday's close. That would be the largest one-day move Intel has made since the end of June.
Intel was up slightly in Thursday's session.