Intel Corp (INTC) stock is breaking out again after an impressive few days..
One bad thing about INTC stock is that it currently doesn't pay a dividend.
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But what if we could use options to manufacture our own dividend?
Does INTC Pay a Dividend?
Let's say I have $12,000 to invest into INTC stock, I could simply buy 100 shares and hope the stock rises.
But, if I want a more conservative play, I could sell a December 18 put with a strike price of $120 and set aside the $12,000 in case I am assigned on the short put.
That $120-strike put generates around $1,260 in option premium in around six months.
So, my $12,000 investment into INTC is giving me a 50.4% annualized "dividend".
Risks of the Trade:
Much like owning INTC shares, if the stock drops, I'm going to lose money in the short-term.
If INTC is below $120 in December, then I will be forced to buy 100 shares at $120.
The breakeven price is equal to the strike price less the premium received, which in this case would be $107.40, which is a 15.69% discount on the current stock price.
So if INTC is below $107.40, at expiration the trade loses money.
But, if INTC stays above $120 then I achieve a 50% per annum return when the put expires worthless.
Cash secured puts are a bullish strategy but are considered slightly less bullish than owning INTC stock because the potential gains are limited to the premium received.
The second risk with the trade is that if INTC stock goes on a huge rally, we miss out on any upside. The most we can make is the $1,260 from the option premium.
Greeks and Equivalent Exposure Level
The $120-strike put currently has a delta of 35, so selling this put gives an exposure roughly equivalent to owning 35 shares of INTC stock, although this will change as the stock moves up and down.
It also means the put has a roughly 65% chance of expiring worthless.
One method which can help cut the risk is to turn the trade into a spread and buy a $100-strike put. This turns the trade into a bull put spread and cuts the risk from $12,000 to around $2,000.
There are lots of interesting scenarios you can create with options.
Company Details
Intel Corporation, one of the world's largest semiconductor company and primary supplier of microprocessors and chipsets, is gradually moving into data-centric businesses such as AI and autonomous driving.
Intel is a dominant player for microprocessors in both consumer and enterprise markets.
Data Center Group, Internet of Things Group, Mobileye, Non-Volatile memory solutions group and Programmable solutions Group and All Other business units form the crux of Intel's data-centric business model.
DCG segment deals with servers, workstations and other products for cloud, enterprise, and communication infrastructure market. IOTG offers high-performance compute solutions and embedded applications.
PSG segment offers programmable semiconductors, primarily FPGAs and structured ASICs.
Mobileye is engaged in developing computer vision and machine learning-based sensing, data analysis, localization, mapping, and driving policy technology for ADAS and autonomous driving.
Key Statistics
Implied volatility is currently 70.14% compared to a twelve month low of 45.60% and a twelve month high of 104.35%.
Of the 46 analysts covering INTC, 12 have a Strong Buy rating, 1 has a Moderate Buy rating, 31 have a Hold rating and 2 have a Strong Sell rating.
Please 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.
On the date of publication, Gavin McMaster 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.
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