Intel fell nearly 3% Tuesday, pushing the stock back below its 50-day moving average. Things aren't looking good for Intel, as the semiconductor giant that once ruled the industry now ranks 12th in its group, according to Stock Checkup scores from Investor's Business Daily.
IBD also now gives Intel a Composite Rating of 13, an Earnings Per Share Rating of 6 and a Relative Strength Rating of 27. The best score in each category is 99.
This is the sort of setup to look for when scouting for bearish option trades. One possibility is a setup known as a bear put spread. This is a bearish option trade that benefits from further downside in the stock price.
A bear put spread equates to a debit spread, meaning investors need to pay the premium in order to open the trade. On Intel, a bear put spread could be set up using the 22 strike price as the long put and the 18 strike price as the short put for the June 20 expiration. This trade would cost around $150 per contract with a maximum potential gain of $250.
How To Profit From Losses In Intel Stock
To achieve the maximum profit, this trade would need Intel stock to drop a further 18% between now and expiration on June 20. The break-even point for the bear put spread is 20.50 which is calculated as 22 less the $1.50 option premium per contract.
If Intel stock drops early in the trade it may be possible to make a profit at slightly higher prices. At expiration, if Intel stock is trading above 22, the entire spread would expire worthless, and the trade would lose 100% or $150.
A possible stop loss amounts to 50% of the premium paid, which in this case translates to a loss of around $75.
Remember, this is a bearish position. Traders who think Intel stock could move higher from here should not enter this trade. It starts with a delta of -27, with exposure roughly equivalent to being short 27 shares of Intel stock.
One Bearish Trade That Worked
But note that this bearish trade on Broadcom has done well. Further, investors have the choice of closing it early for nearly a full profit.
Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, and is conservative in his style. He believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.
