Chip giant Intel (INTC) will report its fourth-quarter earnings on Jan. 26. The options market is currently implying a move of 7% on Intel’s earnings, less than the 7.6% average Intel has moved on past earnings releases.
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Analysts estimate EPS of 20 cents on revenue of $14.53 billion. If Intel has a larger-than-expected move on the report, investors can use a straddle to profit.
A straddle is an options strategy where an investor takes no view of the up or down direction of shares on inception. Instead, the trader believes shares will move more either way than the market is anticipating.
Placing Straddle On Intel Stock
With Intel trading at 30.25 at the close Thursday, investors can consider placing a straddle by buying the 30 call and 30 put on the Jan. 27 expiry. This trade can be placed for a debit of $2.60 per share, which also coincides with the maximum loss of $260 if the shares trade exactly at 30 on expiration.
This trade will earn a profit if Intel trades below 27.40 or above 32.60 on expiration. In the event of an earnings blowout, the maximum gain on this trade is unlimited.
As long as the implied move remains subdued, investors may be better off placing this trade next week or even up to the day before Intel’s earnings event. This will result in a smaller debit and closer break-even though it comes at a cost of less time in the trade.
Breaking Down Intel’s Prior Earnings Moves
The implied move of 7% on Intel’s earnings event looks on the cheaper end compared to the 7.6% Intel has realized on average. Furthermore, recent earnings events have been increasingly volatile, with moves of 8.5% in Q2 and 10.5% in Q3 respectively.
As macroeconomic conditions change, it can also help to look at competitors to see where their implied earnings moves are with respect to historical averages. Advanced Micro Devices (AMD) will report its fourth-quarter earnings on Jan. 31 with an implied move of 7.1% — well above a 5.7% average realized move.
This could infer that Intel’s implied earnings move may be underpriced relative to AMD and also could present an opportunity for investors to sell a straddle on AMD and buy a straddle on Intel.
Nevertheless, it is important to stress that earnings are naturally unpredictable and this type of trade could easily result in two losing trades.
Shares of Intel have been trending lower since April 2021, and have a meager IBD Composite Rating of 19 and Relative Strength Rating of 22. While shares still remain well below their 200-day average they have had a slight bump recently and are now above their 50-day line.
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