Intel Traders Bet Stock Will Jump 7%

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Intel Traders Bet Stock Will Jump 7%

(Please keep in mind that the author of this fundamental study is also a financial writer and portfolio manager.)

Intel Corp.’s (INTC) stock is still over 8% below its June peak, when news of CEO Brian Krzanich’s departure sent the chipmaker’s shares plummeting. That revelation overshadowed the company’s improved second-quarter outlook, which predicted a 37.5% increase in profits and a 16.5% increase in sales.

Options traders now expect Intel shares to rise 7% in the next three weeks after the publication of results on Thursday after the conclusion of trading.

INTC data by YCharts

A 7% Gain

The options expiring on August 17 suggest that the stock will climb or fall by around 6% from the strike price of $52.5. By expiry, the stock will be trading in a range of $49.30 to $55.70. The bets on Intel rising outweigh the bets on Intel falling by around 1.5 to 1, with the number of calls at around 16,500 contracts.

The $55 calls have experienced an uptick in activity, with the number of open call contracts increasing by more than 50% to 25,000 since July 11. The options are worth around $0.60 per contract, and a buyer of the calls would need the stock to gain 6% from its current price of $52.50 to $55.60 to break even if held until expiry. There are over 19,000 open call contracts at the $56 strike price, selling for approximately $0.40 per contract. To break even if held until expiry, a buyer of such call options would require the stock to gain by nearly 7.5%.

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Strong Earnings

Options traders seem to be wagering that profit and sales expectations will be revised upward when the business releases its second-quarter results. Analysts expect profits to climb by 34.5% to $0.97 per share, which is less than the company’s projection. Meanwhile, sales is expected to rise about 14% to $16.8 billion, falling slightly short of the company’s expectations.

INTC EPS Estimates for Current Quarter data by YCharts

A History of Beats

Intel has above sales projections for four consecutive quarters, while profits have outperformed estimates in each of the prior eight quarters.

INTC Quarterly Actual EPS data by YCharts

It seems that wagers are stacking up that Intel will be able to deliver a large earnings beat, driving shares higher and erasing most, if not all, of the stock’s losses at the beginning of June.

Michael Kramer is the originator and manager of the actively managed, long-only Thematic Growth Portfolio at Mott Capital Management LLC, a registered investment advisor. Kramer normally purchases and keeps equities for three to five years. Click here to see Kramer’s profile and portfolio holdings. The information offered is only for educational purposes and does not constitute an offer or solicitation to sell or buy any particular stocks, assets, or financial strategies. Unless otherwise specified, investments involve risk and are not guaranteed. Before adopting any of the strategies outlined here, contact with a knowledgeable financial advisor and/or tax expert. The adviser will offer a list of all suggestions made in the previous twelve months upon request. Past performance does not predict future performance.

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