I bought Intel November 2006 20 calls for 1.95/contract. The thought behind this trade was to increase leverage buy buying additional contracts with the profits gained from the Jan07 17.50 calls which were deep in the money and tying up a large amount of cash.
Instrinsic value on the option was $1.70 so I paid $0.25 for the time premium of approximately 5 weeks. Reasons for the purchase:
1) Intel has recovered nicely off its lows earlier in the year
2) They are announcing earnings tomorrow (10/16) which are expected to be good
3) Time premium seemed quite low given the volatility over the coming weeks (Earnings from Intel and AMD)
4) The November calls at a higher strike price allowed me to buy twice as many contracts still in the money with a slight margin of safety
5) I expect the consumer and business PC industry to be strong over the next several months due to the upcoming Vista launch, I expect this upcoming demand to bring additional purchasers into the stock
on Oct 21st, 2006 at 4:10 am
Well, the stock didn’t move much after earnings were released. Intel beat estimates but still lost market share to AMD. AMD announced earnings on Wednesday night and beat the estimates as well, but the stock was killed due, mainly, to lower margins indicating that Intel is fighting back and the processor price wars are hurting AMD.
Both companies will lose profit when there is a price war, but it seems that the general consensus is that Intel will be able to cause a lot more harm to AMD then the other way around. AMD has dropped ~20% in the last couple days. Intel is down only slightly.
The options themselves are down about $0.40/contract which doesn’t sound like a lot, although it was only $1.95 to get in so the position as a whole is off about 20%.
I still feel like the processor demand over the coming months will be very strong, but I wish I had kept my Jan 07 calls instead of switching into November…January would have given me a few extra months for positive news to come out regarding PC demand.