Unusual call options volume in three different tranches of Intel Corp (INTC) stock traded today. INTC stock has fallen recently after a recent financial reporting update. This shows Investor interest in the stock's potential upside.
The stock has taken a tumble recently, especially after Intel reported that its results, including its chip foundry business now broken out as a separate reporting line, showed a net loss for the unit. The company's revised 10-K indicated that this unit lost $6.955 billion in 2023 on $18.91 billion in revenue. Prior years also showed losses.
Some investors must now be thinking that the drop in INTC stock may have gone too far. They have been buying (and others are selling to them – not as bullish) call options in near-term expiry periods.
The three call option tranches are seen in Barchart's Unusual Stock Options Activity Report on Friday, April 5, 2024.
The table above shows that call options expiring in 3 weeks, today and in one week have traded at large volumes compared to their prior outstanding call option contracts (i.e., the Vol/OI) column. These call options are all at strike prices that are out-of-the-money (OTM) - i.e., higher than the existing price today.
So that means that bullish investors buying these calls believe that the stock will turn around in the next several weeks. On the other hand, others selling those calls believe that the stock will stay flat or even fall from here. They are happy to collect the short-sale income.
So, what is going on here with INTC stock? Should investors copy these moves in these highly volatile call option trades?
Intel's Long-Term Outlook
Analysts still believe that the company's revenues and earnings will trend higher over the next year or so. For example, 39 analysts surveyed by Seeking Alpha have an average revenue forecast of $57.56 billion for 2024 and $64.22 billion next year. That represents a potential 6.1% gain this year over last year's $54.228 billion sales this year and a further 11.6% rise next year.
Moreover, analysts still project earnings per share (EPS) will be significantly higher this year at $1.36, over last year's paltry EPS of 10 cents. Next year they project EPS of $2.32. In other words, they project a major turnaround.
Does the company's breakout of its foundry business signal a way for this to happen? The problem is that its chip-manufacturing business sales fell by over 31% from $27.49 billion in 2022 to just $18.91 billion in 2023. Moreover, losses widened in that unit from negative $5.2 billion in 2022 to almost $7 billion in 2023.
However, yesterday the company's CFO told analysts, according to the Wall Street Journal, that sales have reached a bottom. Moreover, he indicated that this is the low point for the unit's losses and expects “breakeven operating margins in the next few years.”
How to Play This
That may or may not be enough for analysts and stock market investors. The fact that these calls have a large volume indicates that there are believers on both sides,
The problem is that this makes the turnaround more or less a gamble, especially in the short term as far as these call option trades are concerned. It's not uncommon for a stock to continue tanking, for example, after bad news like this.
On the other hand, INTC stock appears to be cheap here. Based on an estimated EPS of $2.32 for 2025, at $38.53 per share, it is trading for just 16.6x earnings. Moreover, the average price target of 32 sell-side analysts as recorded by AnaChart.com, a new sell-side tracking service, is $45.52 per share. That represents an upside of over 18% from today's price.
That may make sense for investors to buy the stock long-term or to buy long-term calls. The risks are much higher with short-term expiry ones such as the ones in today's Barchart Unusual Stock Options Activity Report.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
