How Large Option Traders Are Playing Intel Following Earnings Sell-Off

While semiconductor stocks Advanced Micro Devices, Inc. AMD and NVIDIA Corporation NVDA consistently rank among the market’s top performers year after year, Intel Corporation INTC just hasn’t been able to get its act together.

Intel shares dropped more than 11% on Friday after yet another disappointing earnings report, and large option traders were there to trade the dip.

The Intel Trades: On Friday morning, Benzinga Pro subscribers received 37 option alerts related to unusually large trades of Intel options. Here are a handful of the biggest:

• At 9:39 a.m., a trader bought 1,000 Intel put options with a $51 strike price expiring on Oct. 30 near the ask price at $3.05. The trade represented a $305,000 bearish bet.
• At 9:51 a.m., a trader sold 1,000 Intel put options with a $35 strike price expiring in January 2022 at the bid price of $2.081. The trade represented a $208,100 bullish bet.
• At 9:56 a.m., a trader sold 1,650 Intel put options with a $40 strike price expiring in January 2022 at the bid price of $3.65. The trade represented a $602,250 bullish bet.
• At 10:56 a.m, a trader sold 1,264 Intel put options with a $48 strike price expiring on Nov. 20 near the bid price at $1.95. The trade represented a $246,480 bullish bet.

Of the 37 total large Intel option trades on Friday morning, 21 were calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Another 13 trades represented calls sold at or near the bid or puts purchased at or near the ask, trades typically seen as bearish.

Three trades were executed near the midpoint of the bid-ask spread, a price typically considered neutral.

Why It's Important: Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the largest Intel trades, they could potentially represent an institutional hedge.

See Also: Intel Falls On Q3 Results: 8 Analysts On Gross Margin Pressure, Manufacturing Challenges

More Uncertainty Ahead: Intel investors suffered more disappointment on Thursday when the company reported a 7% drop in its Data Center Group revenue and said shareholders won’t get an update on the company’s delayed 7-nanometer processors until at least January. In July, Intel said investors shouldn’t expect its 7 nm PC processors until 2022 and 7 nm server processors until 2023.

The earnings report and business update were so bad that Bank of America analyst Vive Arya downgraded Intel from Neutral to Underperform on Friday and cut his price target from $60 to $45.

“The result could be years of uncertainty, with customers at a minimum moving more share to AMD for risk mitigation, and increasingly for a more compelling price/performance/feature list,” Arya wrote in the note.

Intel also reported adjusted EPS of $1.11, in-line with analyst estimates. Third-quarter revenue was $18.33 billion, beating Wall Street expectations of $18.25 billion. However, revenue was down 4% compared to a year ago, and investors and analysts are clearly concerned over the company’s inability to get its business on the right long-term track.

Benzinga’s Take: Intel shares are now down 21.5% in the past three months, and the stock’s attractive forward earnings multiple of 11.4 is no longer much of a comfort to investors concerned about Intel losing market share and falling years behind its top competitors’ technology. Much of the bullish option trading action on Friday may simply have been traders taking profits on their winning put positions.

Intel’s lackluster quarter will likely stand out even more when AMD reports earnings next Tuesday.