Intel Stock and Adjusting In The Money Naked Puts

Recent stats on Intel Stock continue to show the majority of analysts are bearish on Intel Stock. Of 36 analysts following Intel Stock only 4 have it rated a buy and 22 have left it as a hold. Standard and Poors released a report recently where they set their 12 month target price on Intel Stock at $23 basing it on their projection that earnings will be $2.04 a share in 2014 resulting in a PE of 11.3 times. They see no growth in 2013 and expect revenue to increase in 2014 by 4.9%. They therefore indicated that Intel Stock is fully valued at present levels.

Intel Stock Is All About Revenue

Intel Stock is being whipped about due to revenue concerns. The belief among analysts and many investors is that Intel Corporation (INTC) will struggle with lower margins as higher expenses from R&D eat into its bottom line. Add to that the decline of PC sales in general which is pegged at about 14% in the last quarter and you can see the concern for a revenue decline has some merit.  But Intel is a huge company with very little debt and is moving forward into other areas of revenue generating. This includes positioning themselves to be a leader in cloud-based server hardware. Intel estimates a full 30% of its earnings within the next 10 years will be from cloud-based server hardware.

Short Interest In Intel Stock

Their outlook is based on what they see as weak demand for PC’s including Ultrabooks as the market shifts to tablet devices. They are not alone in their somewhat dismal outlook for Intel Stock.

Short interest in Intel Stock is rising along with the stock. The table below from the NASDAQ Index shows the number of short shares. You can clearly see that the level of short interest in the stock is rising and has been since early 2012.

Intel Stock Short interest

Short Interest In Intel Stock to end of April 2013

Intel Stock Put Options Interest

Meanwhile buying put options against Intel Stock has slowed considerably as Intel Stock has risen. This is opposite of what we are seeing with short interest in the stock. Obviously put option traders have been hurt with buying 3 month out put options which earlier this year were the number one choice for a lot of option investors when Intel Stock failed to fall.

Still though the Schaeffer’s put/call open interest ratio (SOIR) on Intel stands at 1.17, meaning that open interest on puts outweighs open interest on calls — about 6-to-5 — for option contracts set to expire in the next three months which shows that investors are still bearish on Intel Stock but not to the degree they were earlier this year.

In The Money Naked Put Options On Intel Stock

I am presently holding in the money naked put options from last year which I had sold prior to the decline in Intel Stock. I am still holding naked puts at $26, $25 and $24 put strikes. I have continued to roll these puts forward and reduced the number of put contracts on each of the roll outs.

Intel Stock Naked Put Positions

Naked Put Strike Positions in Intel Stock

I have then taken the freed capital and sold naked puts below these strikes to continue to generate income while waiting for Intel Stock to recover.  Selling naked puts at strikes as low as $19 and $20 means earnings very good income and reducing the overall cost basis of those naked puts at $24 and above.

As Intel Stock has climbed higher, I have not been selling many new put contracts since my capital is tied to the $20 May 18 put options which expire this week.

3 Month Intel Stock Chart

Looking at the Intel Stock 3 month daily chart we can see that there is a lot of support at $22 and below. There is no support at $23 and presently Intel Stock is attempting to build some support at $24.

Intel Stock 3 month Chart

Intel Stock 3 Month Daily Chart

I am not sure then, that Intel Stock will recover the previous highs of $25 and $26 in short order. Indeed these strike levels might not be reached with this rally which started in mid April 2013 and why still pushing higher, Intel Stock is exhibiting signs of tiring.

July Intel Stock Options Expiry

I am holding July $26 and $25 naked puts. There is a good possibility I will roll my July $26 naked puts out and down shortly. I have 7 naked puts left for the July $26 level. These I will roll down to January $25 or $24 if possible at the first sign that this rally is ending in Intel Stock. To make up for any net debit on the roll down I will sell additional naked puts out of the money and double the amount. In other words I will roll the 7 $26 July put strikes out and down but I will also sell 14 additional naked puts out of the money to make up for any net debit I may take on the roll down.

Staying Away From Stock Assignment

As much as I like Intel Stock I still prefer to just keep bringing in more put premium while the stock wanders up and down.

Covered Calls on Intel Stock

I could accept assignment on the July $26 naked puts and turn to in the money covered calls to work my capital back out of those $26 naked puts. Indeed if Intel Stock should pull back too quickly for me to be able to buy and roll down reasonably, I will probably take that route. I would not wait however until July options expiry but instead I would sell in the money naked calls as soon as I noticed the stock turning lower and then let the July $26 be assigned by July if the stock is still below the $26 strike.  However the main investment strategy for Intel Stock remains with Put Selling and that will be my focus unless I have not choice but to accept shares.

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