Intel Traders Bet Stock Will Jump 7%

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Intel Traders Bet Stock Will Jump 7%

(Note: The writer of this fundamental analysis is a portfolio manager and financial writer.)

The price of Intel Corp. (INTC) shares has dropped by about 8% from its June high, when reports of CEO Brian Krzanich’s departure first surfaced. The company’s revised second-quarter projection, which predicted that profits would increase by 37.5% and sales would increase by 16.5%, was overshadowed by the news.

Following the results announcement on Thursday after the end of trading, options traders now anticipate that Intel shares will increase by 7% over the next three weeks.

INTC data by YCharts

A 7% Gain

The August 17 expiration date for the options implies a 6% gain or decrease in the stock’s price from the $52.5 strike price. By expiry, it sets the stock in a trading range between $49.30 and $55.70. With the number of calls at around 16,500 contracts, the number of betting on Intel rising outweighs the number of wagers on it falling by a ratio of about 1.5 to 1.

Activity has increased for the $55 calls, with 25,000 open contracts—a more than 50% rise since July 11—indicating increased activity. The stock must increase by 6% from its current price of $52.50 to $55.60 for a buyer of the calls to break even if holding the options until expiry. The options are currently trading at around $0.60 per contract. There are over 19,000 open call options with a $56 strike price, selling for about $0.40 each. If held until expiry, a buyer of those call options would require a 7.5% increase in the stock price to break even.

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Strong Earnings

When the firm releases its second-quarter data, options traders seem to be wagering that profits and sales forecasts will exceed expectations. Less than the company’s projection, analysts anticipate profits to climb by 34.5% to $0.97 per share. Forecasts also indicate that sales would rise by about 14% to $16.8 billion, falling barely short of the company’s projection once again.

INTC EPS Estimates for Current Quarter data by YCharts

A History of Beats

Intel has been able to outperform sales forecasts for four consecutive quarters, while each of the previous eight quarters’ profit forecasts have been surpassed.

INTC Quarterly Actual EPS data by YCharts

It seems that wagers are increasing on Intel’s ability to deliver a large earnings beat, propelling shares higher and wiping out most, if not all, of the stock’s losses at the beginning of June.

The owner and manager of the actively managed, long-only Thematic Growth Portfolio atMott Capital Management LLC, a registered investment advisor, is Michael Kramer. Kramer often invests in equities and retains them for three to five years. For more on Kramer’s background and assets, go here. The information provided is only for educational reasons and is not meant to be a solicitation or an offer to buy or sell any particular securities, investments, or financial strategies. Unless otherwise noted, investments entail risk and cannot be guaranteed. Before putting any of the strategies described here into action, be sure to speak with a skilled financial advisor and/or tax expert first. The adviser will offer a list of all suggestions made in the previous year upon request. Performance in the past does not guarantee performance in the future.

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