I underestimated Intel's bullishness

Intel (INTC) is on fire again following very positive earning results reported on Tue. As I have said several times, don’t simply listen to those Wall Street analysts who are usually late in the game and don’t have the long-term view. They tend to look at the rear mirror and overreact to bad news. Intel  has been considered dead money for many years and almost no one believed it anymore that it would continue to grow. It was one of the most hated stocks in the Street.  But not me as you can see from my blog starting 4-5 years ago. Here is the prove from one of my positions for Intel. It is a combination of 3 option arms I made one and half a year ago (Nov 2012) when Intel was trading at low $20s:

-          The top one is a bullish bet with long call options. 

-          The middle one is a technical component with which I generated some instant income to partially fund my bullish call option above. It is kind of covered calls. While I did get some money from it, the downside is that I virtually have capped my profit from my long call options at $30.54. At the moment, since Intel is much more than $30, this portion is basically offsetting against the top one: i.e. when one is increasing, the other will be decreasing.

-          The bottom one is another bullish bet that I did not expect Intel would go down below $20. It is a naked put trading. With it I also generated the instant income to fund my call options.

 

This is one example how to use options wisely to get paid for betting something. See the middle column with the circle. These are the prices I either paid or was paid for. For the top row, I paid $3.15/share to bet Intel would go up more than $23.15 in 2 years. For the middle and the bottom rows I got instantly paid (earned) $0.54/share & 10.50/share, respectively. So the whole position meant that I earned $7.89 (10.50+0.54-3.15) upfront when I set up this trade and my worst result could be that I had to buy Intel at $19.5 if its price went below this level by Jan 2015. I traded 10 contracts for each (= 1000 shares). With this kind of setup with being paid upfront, you may understand it is very difficult to lose money, isn’t?  While the whole position is very profitable as it stands now, in the hindsight, it was my stupidity to use the  covered call option (middle row) to cap my upside potential.  The idea was not bad to use some instant income to fund my trade. But apparently I did it too soon as it did not bring me too much income (just $540). I guess even myself was kind of underestimating Intel’s ability to move high quickly over $30 within 2 years. I thought it would already be a very good move if it could advance up to $30 and was not so much convinced for it to be over $30 in a short 2 years period.  This is kind of learning process for me as well that in the future I’d think more about the benefit/risk before setting up such kind of combo option trades.

 

So are you starting to become interested in Intel now? I hope you did so much earlier. While I think Intel is a great stock to buy and hold for long-term, I don’t like the euphoria about it at the moment. Suddenly all the analysts seem to wake up as if they are much cleverer than others to see the potential of Intel and are buy to upgrade it for buy. I don’t like it for the short-term. If you want to buy, likely you may get a better chance in a few months from now when the euphoria sets down. I think it is short-term overbought at the moment. It would be a much better buy if it can decline towards $30 or so.