INTC - Daily Trading Strategy

Daily Trading Strategy

Intel INTC (NASDAQ) has emerged from its lows that it set in December 2012. It broke out of  a range between about $19 and $21 midway through April and has been rising with only a few small pull backs in the last few weeks. A possible short opportunity could be presenting itself here and one potential way to exploit this is with options and going long INTC puts. This simple strategy will provide a positive return if INTC falls from its current level. A best case scenario would be a 6% - 8% retracement of the underlying to the 50 day moving average:

On a two year chart INTC has returned to a key area around $24 that provided a resistance point in 2011 and served as a support point from May to August in 2012:

The question now is if this level will serve as a support for INTC to move higher or if it will provide resistance and INTC will fall below this level. The RSI has recently given a sell signal and the average daily volume is declining. This combined with the recent quick upward acceleration of the stock price could suggest that INTC is ripe for a pull back. On May 17 INTC made a topping tail and failed to reach a new high. This presented a good entry point to enter into a long put:

If INTC drops from this area we can expect puts purchased at $.70 to yield 130% given an approximate delta of .4609 for the July $24 PUT and assuming downward move in the underlying to the 50 day moving average. This implies a move from $24 to $22 in the underlying. A move above 24.50 in the underlying would deal 24% loss to the long PUT option given the delta of .4609 and this level should serve as a stop out for the long put.

Please refer to http://www.optionseducation.org/en.html for a calculator to estimate option deltas.

The preceding is for interest only and not to be considered investment advice.