In one corner we have Goldman Sachs.....the 800 pound gorilla, and legend on the street. Last week, they lower Intel's rating to sell and lowered its price target to $20. They citing “slowing processor shipments, rising competition and record capital spending this year”.
In the other corner we have CCI...the .8oz chimp and a legend in his own mind. CCI still believes in the bullish story for Intel and continues to look to add to the position below $22.
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Intel fell back to $22 on Wednesday. Reasons might include
Goldman Saks publishing a downgrade last week with a price target of $20.
The general market pull back in response to a perceived slowing US economy
Technical analysts “filling the gap”
CCI has been and continues to be bullish on Intel and continues to be willing to accumulate under $22.
Yes, that puts CCI in direct conflict with Goldman Sachs. It is worth pointing out that
In January with Intel trading around $21, the same GS analyst was “ recommending that investors avoid INTC shares ahead of 4Q earnings as he sees risks skewed to the downside. Specifically "we see overwriting (at $22) as a way for investors to generate additional returns.” Conversely in January , CCI was suggesting it was time to accumulate under $22, even with going so far to suggest using Leaps for leverage. The stock reached $24.
At the risk of being cynical and a conspiracy theory kind of guy..... there is a lot of open interest in the $24 strike price, and $23 is the option “max pain” point for June. I won't try to explain max pain, but suffice it to stay that someone who wrote these options (like GS recommended) could be a looser if the price continues to rise, and there is some evidence the stock price might "pin" towards this level ($23) by option day. Of course that would imply that the street might manipulate a stock price via its trading or recommendations to improve its derivative position. How could that be...hmmm.
From a trading perspective, CCI readers will recall that June $22 calls were sold for $.84 a few weeks ago. At the time of this post, they are trading at $.45. So the portfolio is sitting on a $.39 unrealized gain. As Intel hit $22, CCI added to its Intel position by selling one lot of June $23 puts for $1.07 after commission. These options will move in opposite directions. One of three scenarios plays out if held to expiration
Worse case – the stock continues to fall well under $22, The portfolio harvests the $.45 remaining on the covered calls sold a month ago , and will have juiced the performance on that lot by 4%. More importantly, another lot is acquired at an effective price about $21.92. CCI thinks that is a good price. GS disagrees. We will see who is right.
Assumed Case or the Scenario CCI is hoping will happen - the stock holds $22 support but does not rise over $23 by June expiration. In this case one lot will be sold at an effective price of $22.8 and one will be bought at an effective price of $21.9. Swapping those lots has the potential to effectively have generated a potential $.90 trading gain (4.5%)
Best case – The stock bounces quickly back over $23. One lot of the stock will be called away at $22, but the portfolio will have harvested both the $.84 and $1.07 option premiums. That is an effective sales price of the lot at $23.91.
Of course, those are the scenarios if held to expiration. CCI may likely trade out of these positions if the stock moves substantially in the short term.