Huge, Unusual Intel Options Volume Today Ahead of Earnings This Week

Today, there is a large tranche of in-the-money Intel Corp (INTC) call options. Investors are playing volatility ahead of earnings, due to be released on Thursday, July 23, after the market close.

INTC is up over 3.7% today at $99.24 in midday trading. I discussed Intel's upcoming earnings today and a high-yield short-put play in my earlier Barchart article, " Intel Stock Is Down, But Put Premiums are High - Put Short Sellers Love the High Yields ."

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The gist of my article is that INTV looks too cheap. That could be why some institutional investors are buying huge volumes of in-the-money (ITM) calls at $80.00 today. They expire in two days, July 22, just ahead of the earnings release.

There have been over 7,200 call options traded at $80.00 expiring July 22, which is 57x the prior number of contracts outstanding.

This can be seen in the Barchart Unusual Stock Options Activity Report. It shows that the ask price is $18.35, so an investor buying these ITM calls has a breakeven point of $98.35.

However, as of this writing, the ask price is $18.95, bringing the breakeven point to $98.95 ($80 +$18.95). That is still below the stock price, so the investor buying these calls can exercise them and make a profit:

That represents a 2-day return of 0.4875% (i.e., $0.39/$80). If this could be repeated 15x this month, or every 2 days, the monthly expected return (ER) would be 7.3125% . That's a very attractive ER.

However, investors should note that by the time this article comes out, the premium could have risen. So, be careful in copying this trade.

My July 20 Barchart article earlier today on Intel shows how INTC stock could be worth between $105.76 and $149.0 0 over the next 12 months to next year, or an average of $127.38 .

These are based on expected free cash flow (FCF) estimates I have derived using analysts' Intel Corp. revenue forecasts and estimated FCF margins. Management has said they expect to be free cash flow positive by the end of the year, not including one Fab buildout.

Moreover, Wall Street analysts have similar high price targets (PTs). Yahoo! Finance shows an average of $106.70, and Barchart has a mean survey PT of $108.46. These are close to my lower price target of $105.76.

As a result, one conservative way to play this is to short Intel puts. That way, an investor can set a potentially lower buy-in point and also earn income while waiting.

I described this strategy in my earlier Barchart article today. I described how shorting deep out-of-the-money (OTM) puts can provide one-month 4.5% yields for a strike price that is 15% lower than Friday's price.

The put premiums may be lower today now that INTC is moving up, but they still show high yields. For example, the Aug. 21 expiry $85.00 put strike price has a midpoint premium of 5.35 and the $90.00 put strike price has a midpoint premium of $7.23.

That means a short-seller of this put option can make a one-month yield of 6.29% (i.e., $5.35/$85.00) with the $85.00 put and 8.0% (i.e., $7.23/$90.00) with the $90.00 put contracts.