The Long and Short of Trading Intel (INTC)

Shares of Intel Corp. INTC have come under pressure as of late, breaking the $19.00 support level and cascading down to its current trade price of $17.78. The investing and trading community is decidedly mixed on the direction on the name from where it stands now. Long term, fundamental investors are citing how “cheap” the company has become so quickly, the 3.54% dividend yield, and the large cash hoard on the balance sheet. They are also quick to illustrate that the stock is now trading at historical support (…again) that dates back to mid-2006. Short-term traders have the stock’s recent performance over the near-term. A look at INTC’s chart will show that it is clearly out of favor and that, if the stock were to break lower, it could easily visit $16.00, then $12.50. These traders will also cite the pressure that will remain on Intel’s shares until it completes its recently announced acquisition on McAfee MEE. So what’s the trade? The Long Side • For long biased investors, you should consider buying half a position in the stock right here ($17.78) and selling the January 2011 $15/20 strangle for $1.16 (6.52% of shares). If you stock is not called away you should continue to sell strangles on the position as long as possible. The Short Side • Those with a bias toward the downside, reflecting the above $16.00 and $12.50 levels on the downside, you should look to (surprise, surprise) buy the $16/12.50 1x2 put spread for a net debit of $0.39. Your max gain, which is taken at $12.50, will be $3.11 (797% return over the holding period). Losses aren’t taken until the stock trades south of $10.50. For more great research like this, as well as how to play it through options…please visit Benzinga’s Options & Volatility Edge and Benzinga’s Cash Generator.