What are your options - Intel: to trade or not to trade

Options 10 minutes to read
Koen Hoorelbeke

Investment and Options Strategist

Summary:  Intel’s recent news has created a volatile environment, presenting both opportunities and risks for options traders. This article explores strategies to navigate high implied volatility and speculative scenarios, including how to spot put/call skew and what it reveals about market sentiment - insights that apply to Intel and beyond.


What are your options: Intel - to trade or not to trade?

Introduction

Intel (NASDAQ: INTC) has been making headlines lately, with reports suggesting a potential $5 billion investment from Apollo Global Management. This news follows previous speculation that Qualcomm might be interested in acquiring the semiconductor giant. While a full acquisition seems unlikely at the moment, such news can cause significant market movements and volatility. For options traders, these conditions present both opportunities and risks.

Even if you decide not to trade Intel at this time, the insights from this article can be applied to other stocks or situations where similar conditions exist, such as high volatility, potential takeover news, or low nominal stock prices. We’ll explore what the options chain indicates and how to approach different trading strategies in various scenarios.

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
5 year chart © Saxo

Trading stocks with potential takeover news: What to watch out for

When a company like Intel is involved in takeover speculation, its stock price can become highly volatile. This uncertainty can lead to rapid price movements, often in both directions, as investors react to news and rumors. For options traders, this environment offers opportunities but also requires caution. Here’s what to consider:

  1. Implied volatility (IV) surge: Takeover news typically drives up implied volatility, increasing options premiums. While selling options in a high-IV environment can be profitable, traders need to be wary of potential price spikes or crashes if news breaks.
  2. Risk of gaps: In case of a sudden announcement, the stock could gap up or down significantly, potentially breaching multiple strike prices. Defined-risk strategies can help mitigate this risk.
  3. Time decay consideration: Since such news is speculative, it’s essential to keep an eye on time decay (Theta). If no concrete developments occur, the stock might revert to its pre-news trading range, making long option positions vulnerable.

Implied volatility and options market opportunities

Intel's implied volatility has spiked following the news, creating an interesting landscape for options traders.
Intel Implied Volatility over the last year

Here’s what to consider:

  • Current IV levels: Implied volatility is currently elevated. This suggests that the market expects significant movement in the near term. High IV can benefit options sellers, who can collect higher premiums. However, caution is needed to avoid potential sharp moves in the stock.
  • Volatility contraction play: If you believe that the hype around the takeover news will subside without a significant move in the stock, a volatility contraction play, such as selling Iron Condors or Iron Butterflies, could be effective.

What the options chain says: Call/put skew

Option chain used to calculate view if there's a skew in options prices

The option chain data for INTC, focusing on the November 15th expiry (51 days out), reveals contrasting signals between implied volatility (IV) skew and price skew. This expiry was chosen because it is far enough to capture market expectations beyond immediate noise yet close enough to reflect the impact of upcoming events like earnings or corporate announcements. The $16 put and $30 call were selected as they are equidistant from the current stock price of $22.81, providing a balanced perspective on how the market is pricing potential movements in both directions.

The $16 put has a higher implied volatility (65.04%) compared to the $30 call (61.93%), indicating a put skew. This suggests that downside protection is relatively more expensive, reflecting market concerns over potential negative developments or a broader risk-off sentiment. However, when looking at the actual option prices, the $30 call ($0.37) is trading significantly higher than the $16 put ($0.15). This price skew implies that traders are placing a premium on upside potential, likely driven by recent speculation around a Qualcomm takeover or a $5 billion investment from Apollo Global Management.

These contrasting signals between IV and price skews highlight a market that is hedging against downside risk while simultaneously speculating on a significant upward move. This dual sentiment reflects a complex market environment where participants are balancing caution with optimism, positioning themselves for potential volatility amidst a backdrop of strategic developments and market speculation.

Options strategies for different scenarios

Based on your outlook for Intel, various options strategies can be considered. Whether you’re expecting a big move, a moderate change, or stability, there are tailored approaches for each scenario. Before executing any of these strategies, it’s essential to enter them into a strategy builder or trading window, such as those available in the SaxoInvestor, SaxoTrader, or SaxoTrader Pro platforms. This allows you to evaluate the potential risk, reward, and profit/loss scenarios, ensuring the trade aligns with your expectations and risk profile. Here are a few strategy ideas to match different market expectations:

  1. Long straddle or strangle

    • Strategy: Buy both a $23 call and $23 put (straddle) or a $25 call and $20 put (strangle) with the November 15th expiry.
    • Pro: Profits from large moves in either direction; ideal for high volatility.
    • Con: High cost and risk of loss if the stock doesn’t move significantly.
    • Risk/profit: Max loss is the premium paid; profit potential is unlimited if the stock makes a big move.
  2. Bull call spread & protective put

    • Strategy: Buy a $23/$28 call spread and a $16 put.
    • Pro: Balanced risk-reward, profits from moderate upside while limiting downside risk.
    • Con: Limited profit potential due to the capped call spread; premium costs add up.
    • Risk/profit: Max loss is the net premium; max profit is the spread width minus net cost. Losses are mitigated by the protective put.
  3. Iron condor

    • Strategy: Sell the $27/$32 call spread and the $20/$15 put spread with the November 15th expiry.
    • Pro: Allows you to profit from a stable stock price by collecting premium from both the call and put spreads; profits if the stock stays within the range of $20 to $27.
    • Con: Risk is defined but should be carefully managed; losses occur if the stock moves outside the expected range.
    • Risk/profit: Max loss is $5 per spread minus the premium received; max profit is the total net premium received if the stock remains between $20 and $27 until expiry, offering a balanced 3:1 risk/reward ratio.
  4. Ratio call spread

    • Strategy: Buy one $27 call and sell two $29 calls with the November 15th expiry.
    • Pro: Generates a small upfront credit ($0.16); profits from moderate upside while lowering initial cost.
    • Con: Risk of unlimited loss if the stock rallies aggressively above $31.16.
    • Risk/profit: Max profit of $2.16 at $29; breakeven at $31.16. Unlimited risk beyond $31.16 if the stock rises significantly.
  5. Broken wing butterfly spread

    • Strategy: Buy one $23 call, sell two $25 calls, and buy one $30 call with the November 15th expiry.
    • Pro: Generates a small credit while allowing for a defined risk; profits from a moderate move up.
    • Con: Limited profit range and potential for loss if the stock does not move as expected.
    • Risk/profit: Max profit at $25 strike; max loss is the difference between strikes minus credit received. Breakeven at $27.16, offering a favorable risk/reward with a defined loss.

Conclusion: To trade or not to trade?

Intel’s current situation presents both opportunities and challenges for options traders. The elevated implied volatility and takeover speculation create a unique environment, but also come with substantial risks. Whether you decide to trade Intel right now or not depends on your risk tolerance, market outlook, and trading strategy.

Use the information provided here to guide your decision-making, but remember to conduct your own due diligence before entering any position. No single strategy fits all traders, and the right choice will vary based on individual objectives and market conditions. So, to trade or not to trade? That’s a question only you can answer.

As always, stay vigilant and adjust positions as new information emerges. Happy trading!
Previous "What are your options" articles
Previous episodes of the "Saxo Options Talk" podcast
Previous "Investing with options" articles
Other related articles
Why options strategies belong in every trader's toolbox
Understanding and calculating the expected move of a stock ETF index 
Understanding Delta - a key guide for Investors and Traders

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.