Intel (INTC): Options Indicate a Lack of Confidence
By Greg Jensen
A while ago, I wrote about how the options market can sometimes give clues as to the equity market. The conclusion from that piece was that Facebook (FB) was cheap at around $19, so I guess that really was a clue. The problem is that there are many things that influence the price of an option other than the price of the underlying stock, so it can be easy to draw a conclusion that doesn’t exist. Sometimes, however, a trend can be seen that hints at a prevalent sentiment in the options market, and traders and investors are generally wise to take notice.
Yesterday, Intel (INTC) continued its recovery from the low of $19.35 about a month ago, and is showing a positive indication in the pre-market today. Some holders of the stock will be heaving a sigh of relief, believing that INTC has finally turned the corner. They should look again.
There are fundamental reasons why the stock’s 1 Year performance is so awful (see chart below).
INTC, like many others in the computer hardware field, were left behind somewhat in the shift to mobile. While I am sure the company would point to progress in the area of servers, the all important consumer side of the business has underperformed. Even compared to the woeful semi-conductor sector as a whole, INTC has been disappointing this year, with a near 22% drop in EPS, compared to around -19% for the sector.
The recent bounce is welcome for shareholders but, if the evidence of the options market is to be believed, there is a dead cat quality to it. It has seemed throughout that INTC was being dragged up by events rather than showing any life itself. Tuesday’s (Dec. 17th) price action confirmed that suspicion. INTC closed higher, for sure, but was up 0.21% on a day when the NASDAQ closed 1.38% higher and the S&P 500 gained 1.19%. This comparative weakness was even more evident in options. On a day when the stock was up, near the money calls were generally weak. For example, April 2013 calls with strikes of $19, $20, $21 and $22 all lost ground on the day.
Of course, options traders are fallible too, and the weakness in calls doesn’t necessarily foretell disaster. If I were a holder of INTC, however, I would be concerned. If the evidence of the options market is to be believed, this rally could be nothing more than an opportunity to cut your position at reasonable levels. You may choose to ignore the anomaly in options, but don’t say we didn’t tell you.