Wednesday, December 8, 2010

INTC Watch

Semiconductor behemoth Intel Corp. (INTC) announces earnings after the close on Jan. 13. It has two characteristics that I like: A strong tendency toward earnings surprises, and price run-ups in the period leading to those announcements.

ppspsarmacd obvh-a trend ma20ma50ma200
INTC $21.85

Amazingly, INTC still looks like a growth stock, despite its size an leading position in an aging industry. Return on equity is most respectable for the geriatric set, at 24% plus change. Debt is quite low, with a debt/equity ratio of 0.05. Obviously its a favorite of institutions, with 60%-plus ownership.

The stock price doubled from the recession low up to April of this year, when it took a sharp dive, and has been recovering since late August, although it stands far short of the April peak.

On the Person's chart, the price is halfway from the midpoint to the upper weekly pivot.

Person's Table
ppspps openupper pivotlower pivot
INTC $21.85 $21.23 nov24 $22.22 +1.7% $21.25 -2.9%

The price is trading at prices last seen in July and August.

Reversal Levels
  • $21.98, +0.6% (July swing high)
  • $21.90, +0.2% (Today's high)
  • $21.85 --- You are here.
  • $21.17, -3.1%
  • $20.6, -6.0%

One troubling aspect of INTC's history is that positive surprises are often greeted by price declines. Perhaps the company is so well followed that there are no true surprises, the the pre-announcement rise is simply greater interest, and the post-announcement fall is a case of traders moving on to The Next Big Thing on the earnings calendar.

Even so, with earnings more than a month away, there's ample time to benefit from the run-up while exiting prior to the announcement. January options expire on Jan. 21, so the Jan. 13 announcement dovetails nicely with the options calendar.

As always, I want my play to have defined risks, which means using an options spread. INTC is one of the most widely traded stocks on the planet, so it has ample liquidity for an options play.

I would structure the position as a bull put spread.

Ideally, I would want my minimum profitability point to be around the 20-day moving average support level of $21, so I would be looking to sell the $21 put and buy the $19 put, both with January expirations.

But that produces a pretty low credit -- only $26 per contract -- and 6.7 units in risk for every one in reward.

I could instead sell the $22.50 put and buy the $20 put, for an $84 credit per contract and only two units of risk for every one of reward. The downside is that the position is unprofitable below around $21.65, which is above support levels.

Ah, choices.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

  • h-a trend - Heikin-Ashi trend.
  • obv - On-Balance Volume.
  • pps - Person's Proprietary Signal.
  • psar - Parabolic Stop and Reverse
  • ma20 - 20-day moving average
  • ma50 - 50-day moving average
  • ma200 - 200-day moving average
  • macd - Moving Average Convergence-Divergence

About the glance: The colors indicate the state of each signal.
  • Signal Section:
    • pps, psar, macd: green for bull mode, red for bear.
  • Confirmation Section:
    • obv: green for uptrending, red for downtrending.
    • h-a trend: green for uptrending, red for downtrending.
  • Environment Section:
    • ma20, ma50, ma200: green for above the average, red for below the average.

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