Options Corner: Intel Hides In Plain Sight Amid The Shifting Geopolitical Spotlight

With a tenuous ceasefire between Israel and Iran still in place, Wall Street's attention is shifting toward the other contentious geopolitical issue: frayed relations between the U.S. and China. Earlier this year, President Donald Trump sent shockwaves across the global community by launching a series of tariffs, which continues to cloud trade relations. However, the administration has also signaled an unwillingness to rock the boat unnecessarily, which may bode well for chipmaker Intel Corp INTC.

Presently, Intel occupies an unenviable position. While INTC stock may be up nearly 12% — and thus handily beating the benchmark Nasdaq Composite, which is up only 4% during the same frame — this performance can't overlook the broader volatility. Over the past 52 weeks, INTC slipped roughly 27%, reflecting the consequences of various missteps and competitive pressures.

Even worse, last Friday, multiple semiconductor companies — including powerhouses like Nvidia Corp NVDA and Broadcom Inc AVGO — fell due to an unexpected report that Washington may end waivers for chipmakers to send American technology to China. For Intel, this matter is particularly worrisome because a significant portion of the company's manufacturing and sales is tied to China.

Nevertheless, there may be reason for optimism. While Trump routinely utilizes tough rhetoric, he has consistently walked back the intensity of his proposals. Therefore, a push to end waivers — which could easily hurt America's top corporations — probably won't go over too well. Further, there's a very real possibility that Trump himself recognizes this reality.

For example, Trump signaled that he wants a quick solution to the Israel-Iran conflict. It's a similar tone to his much-covered take that he could end the Ukraine-Russia conflict in 24 hours. Generally, the market performs better when geopolitical stability isn't constantly threatened.

Plus, the enormous pressure Trump is applying on Federal Reserve Chair Jerome Powell to cut interest rates would be odd if the administration didn't care about Wall Street. So, this might not be the end of INTC stock.

Making The Statistical Case For INTC Stock

While the fundamental and political backdrop may be conducive for a bullish position in INTC stock, the harsh reality is that these factors lack specificity. Without a clear forecast for magnitude (y-axis) and expected movement timeframe (x-axis), these storylines aren't useful for options traders. Because options expire, both magnitude and time components must be addressed.

To remedy this problem requires statistical analysis, which is a difficult process in finance. Ordinarily, one might be tempted to take the frequency of the desired outcome and divide it by the total number of events in the dataset. This process only calculates the derivative probability or the outcome odds across the entire dataset's distribution. What traders need is the conditional probability — outcome odds across a specific subset of the data.

To use a baseball analogy, derivative probabilities are akin to the batting average over an entire season. Conditional probabilities represent situational batting averages, which are much more useful for in-game tactics.

Unfortunately, applying conditional probabilities is practically impossible in the stock market because share prices fluctuate continuously, which is known as the non-stationarity problem. To impose the necessary stationarity requires conversion of historical price data into discrete states or states that have defined boundaries. For equities, compression into market breadth — or sequences of accumulative and distributive sessions — provides arguably an effective solution.

Currently, the price action of INTC stock can be converted as a "6-4-U" sequence: six up weeks, four down weeks, with a net positive trajectory across the 10-week period. Admittedly, this conversion compresses INTC's magnitude dynamism into a simple binary code. But now, the chaos of the stock's price discovery can be categorized into distinct, discrete behavioral states across 10-week intervals. Subsequently, this calculation then serves as the backbone of past analogs, which can then be used to derive forward probabilities.

Because of the above compression, it's possible to calculate that when the 6-4-U sequence flashes, the next week's price action has a 55.06% chance of rising, with a median return of 2.59%. From the current share price, INTC stock may be on track to exceed the $23 level.

Taking What The Market Will Give You

So, why is the above calculation important? Take a look at the 22.50/23 bull call spread expiring July 18. This transaction involves buying the $22.50 call and simultaneously selling the $23 call, for a net debit paid of $24 (the most that can be lost in the trade). Should INTC stock rise through the short strike price ($23) at expiration, the maximum reward is $26, a payout of over 108%.

Market makers likely view INTC stock hitting $23 as a low-probability event; hence, the high payout. However, based on past analogs, INTC appears to have a solid chance of reaching this target. It's worth pointing out that in the business week beginning Aug. 26, 2024, INTC charted a 6-4-U sequence. At the end of it, the stock skyrocketed for the business week beginning Nov. 4.

Also, as a baseline, the chance that a long position in INTC stock will be profitable over any given week is only 52%. Granted, the 6-4-U provides a modest upgrade in favorable odds. Still, the point remains that the framework incentivizes a bullish posture as opposed to a bearish one. Combined with the potentially encouraging fundamentals, Intel is a name to keep on the radar.

The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.

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