Intel stock is currently the most oversold stock in the Dow Jones Industrial Average and also has a dividend yield of 2.9%.
Investors who were waiting to buy Intel (INTC) stock at a discount from current prices can do so by using options.
That can be done by selling a cash-secured put.
A cash-secured put involves writing an at-the-money or out-of-the-money put option and simultaneously setting aside enough cash to buy the stock.
The goal is to either have the put expire worthless and keep the premium, or to be assigned and acquire the stock below the current price.
It’s important that anyone selling puts understands that they may be assigned 100 shares at the strike price.
Intel Stock Using Jan. 15 Put
For Intel stock, a trader selling the Jan. 15-expiring put with a 43 strike price could generate around $130 in premium per contract.
I would look to sell that contract if the price reached $1.70 to give the trade a bit of extra juice.
The put seller would have the obligation to purchase 100 shares of Intel stock at 43 if called upon to do so by the put buyer.
The 52-week range for Intel stock is 43.61 to 62.29.
The break-even price for the trade can be calculated by taking the strike price less the premium received, which in this case gives a break-even price of 41.30.
That’s an 8.99% discount to Friday’s closing price.
The maximum loss on the trade would occur if Intel stock fell to $0, which would see the trade lose $4,130.
4.12% Return On Capital
If the stock stays above 43 at expiration, the put expires worthless, leaving the trader with a healthy 4.12% return on capital at risk in just over two months.
This is calculated by taking the $170 premium received, divided by the $4,130 capital at risk.
The main risk with the trade is similar to outright stock ownership. If the stock falls precipitously, the trade will suffer a loss, however the loss will be partially offset by the premium received for selling the put.
Cash secured puts are a fantastic way to generate a nice return on stocks the trader is happy to own.
The main risk with the trade is that Intel stock is not exactly highly rated right now, with a Composite Rating of 44 and a Relative Strength Rating of 16.
It’s important to remember that options are risky and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
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View more information: https://www.investors.com/research/options/intel-stock-options-buy-at-discount/