Shares of chipmaker Intel Corporation (INTC) have slid 40 percent in the past year. One trader sees a potential rebound in the next 10 months.
That’s based on the September 2023 $40 calls. With 295 days until expiration, 5,076 contracts traded compared to a prior open interest of 204, for a 25-fold rise in volume on the trade. The buyer of the calls paid $0.88 to make the bet.
Intel shares recently traded for just under $29, so they’d need to rise $11, or about 38 percent for the option to move in-the-money.
The strike price of $40 would still leave the stock well under its 52-week high of $56.
The big drop in shares is somewhat justified, as revenue is down 20 percent compared to a year ago. The company’s efforts to expand into other parts of the chipmaking space have yet to bear fruit, and a slowing economy could further hamper those efforts in the past year.
Action to take: With shares close to a multi-year low, investors can buy shares at around 15 times forward earnings. And the current dividend yield is close to 4.9 percent right now, with a low enough payout ratio to sustain a further drop in earnings. That makes for a reasonable buy now.
For traders, the option is an inexpensive play with plenty of time to play out. That’s perfect for a high double-digit return or better in the months ahead, particularly if the market goes back to rally mode in 2023.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.