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Semiconductor specialist Intel (INTC) has in many ways a make-or-break earnings report coming up, appropriately on Halloween. In the last financial disclosure for the second quarter, the tech giant posted a non-GAAP loss per share of 3 cents on revenue of $12.83 billion. Unfortunately, analysts anticipated EPS of 10 cents on sales of $12.98 billion, sending INTC stock tumbling.
Since the fallout, however, circumstances have improved for Intel. With the bad news baked in, speculators jumped on the risky but intriguing value proposition of INTC stock. Further, some fundamental justification exists, such as the company’s plan to expand chip production in Ohio. Overall enthusiasm for artificial intelligence has also lifted sentiment.
Still, it’s anybody’s guess what will happen on Thursday with the disclosure of Q3 results. One thing is for certain, though: based on the average implied volatility (IV) of 66.74%, the market expects INTC stock to swing strongly in either direction. For context, INTC’s historical volatility (HV) sits at 36.2%.
Placing a directional wager on Intel could be treacherous. It’s a binary proposition, making you look like a genius if you get it right and something different if you get it wrong. Instead, you may want to play the volatility game rather than the directional one.
Use the Power of the Short Put Condor
One of the beautiful aspects of options trading is that you can stack them like Legos. A particular strategy that could work well for the options chain expiring Nov. 1 (this coming Friday) is the short put condor. Essentially, condors are multi-leg options that combine two spreads into one giant trade.
Here, the short put condor is a combination of the bear put spread and the bull put spread. The former strategy profits when the underlying security falls below a certain threshold while the latter profits when it rises above its threshold. Subsequently, the combination of these two strategies enables the trader to benefit from extreme volatility in either direction.
Having said that, the enemy of the short put condor is stasis: the target security must move significantly. To achieve maximum profitability, it must move beyond the upper strike price or below the lower strike. Stated differently, the short put condor anticipates volatility to rise — which is exactly what the market is signaling for INTC stock.
Indeed, it’s possible to deduce actual projected price targets based on IV data. For the Nov. 1 options chain, IV clocks in at 98.47%. Using stochastic analysis, we multiply the following metrics together:
- Share price ($22.68)
- The IV (0.9847)
- Time decay adjustment (the square root of the number of days to expiration divided by 365 days)
Following the multiplication, the product of the above formula comes out to $2.86, in either direction. That means our condor should be structured so that it will pay out the maximum yield should INTC stock rise to $25.54 or $19.82.
Leveraging Barchart Premier for Selecting the Ideal Condor
Without access to Barchart Premier, you’d have to manually calculate which options trades will qualify for consideration based on your criteria (i.e. plus/minus $2.86 over spot, in this case). That’s a hassle with condors, which involve four separate transactions.
However, with access to Barchart Premier, you can immediately see all the available short put condors for INTC stock. Even better, you can download the data into an Excel spreadsheet, allowing you to filter for the most promising trades. Given our stochastic calculations, we can filter our condors down to eight.
From there, the pricing inefficiencies of the derivatives market reveal that there’s really one trade to consider: 20.50P(ut) | 21.00P || 23.50P | 24.00P. With this short put condor, you put $34 at risk for the chance to keep $16 of income, facilitating a yield of 47.06%. The gap to the upside breakeven threshold is 4.87%, while to the downside it’s 9.78%.
It’s possible to choose a more balanced trade with the 21.50P | 22.00P || 23.50P | 24.00P condor. Here, the gap to the upside breakeven threshold is 5.22%, while to the downside it’s 5.15%. The enhanced odds of success come at the penalty of yield reduction to 16.28%, however, which may not be appealing for speculators.
After all, if projected IV is accurate, INTC stock would easily exceed the upper strike (or easily dip below the lower strike) of the 20.50P | 21.00P || 23.50P | 24.00P condor.
Time is Money
With options for major entities like Intel, you must sit through a library of data to find a few nuggets of interesting trading opportunities. However, with Barchart Premier, you can have access to transactions that meet your specific criteria immediately. And that segues into an underappreciated advantage of membership.
Rather than waste precious minutes (if not hours) finding profitable ideas, you can do so in seconds. Over weeks and months, the productivity efficiencies could easily pay for the annual subscription fee, which basically amounts to the cost of a popular streaming service.
As one of the leading trading resources, Barchart Premier helps level the playing field with Wall Street professionals. Don’t miss out, especially during this busy earnings season!
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
