Call Buying in Intel (NASDAQ: INTC) Ahead of Earnings

Semiconductor giant Intel (NASDAQ: INTC) is preparing for its earnings report, which is due after the close on Thursday. Currently, analysts are expecting per-share results of 30 cents, which is quite the improvement from Intel’s year-ago earnings of four cents per share. In six of the past seven quarters, Intel has surprised the Street to the upside, by an average margin of 3.6 cents.

More News On INTC

• INTC

• Most active Nasdaq-traded stocks
  July 29, 2010
• Ballmer: Tablet coming 'as soon as we can'
  July 29, 2010
• A look at recent tech-industry earnings
  July 29, 2010

Virtual Trade INTC

OptionFinder

• Want to manage your risk better when trading INTC?

Find Trades Today

Yesterday, Intel made some modest headway after Auriga upgraded the shares to “hold” from “sell” and boosted its price target to $20 from $17. The firm cites surprising strength in PC shipments, which should trickle down to the semiconductor space. By the session’s conclusion, INTC was trading 12 cents higher at $20.95, up more than half a percent for the day.

Intel reports earnings on the eve of January options expiration, so one investor on Monday opted for some options with a bit more time built in. The February 23 call saw more than 12,000 contracts trade during the session, compared to open interest of 2,296.

Within the first two hours of Monday’s trading, a number of small and mid-sized blocks, the largest of which was 1,423 contracts, hit the tape, trading for 15 cents per contract. At the time of these trades, the bid price bounced between $0.13 and $0.14, while the ask price was hovering near $0.15 and $0.16. It is therefore likely that these options were bought to open.

This long call, currently out-of-the-money, will be in profitable territory at February expiration if Intel rallies above $23.15 (the strike price plus the premium paid). This requires a move of almost 10% between now and February 19th.

The near-the-money February 21-strike straddle is currently priced at $1.58, indicating the options market is currently pricing a move of $1.59 (higher or lower) between now and February expiration – that’s a jump of just 7.5%. The January 21 straddle, which encompasses Intel’s earnings report, is priced at 96 cents, or 4.6% over strike. In other words, the options market is pricing a move of nearly 5% between now and Friday’s close, and an additional 3% move (more or less) for the ensuing five weeks ahead of February expiration.