Options for stock investors. A better way to trade.

New Trade Alert February 24th – INTC

New Trade Alert for (INTC)

INTEL – Buy January 25 Call @ 5.25 or less

 


Risk Rating: 3     (1 = lowest   5 = highest)

Below Break Even Probability: 47%

Max Loss Probability: 26%

Stop Loss @ 50% of premium paid


 

 

A bounce from the February bottom saw Tech turn higher with the NDX gaining nearly 10% in just a few sessions.

 

 

Though new 52 week lows were posted in the broad market S&P 500 February 11th, the NDX held solidly above the August index depths.

 

INTEL had been one of the best performing DOW stocks in 2014 with a slide early in 2015 to give back most of those gains.

 

 

Price action saw a run from $19 in 2013 to the $38 peak.  The halfway support stands right near here at $28 as the midpoint of the last major move.

 

Risk reward favors the bulls at this level with 52 week lows at $25.

 

The first upside target stands at $36 which marked marks the January 2015 gap down break beginning and the year end resistance wall.

 

Instead of buying long shares, a stock substitution strategy limits risk to the premium paid with unlimited upside profit potential.  Less capital is required and the risk is less in dollar terms than buying shares outright.

 

 

The Options Way: Unlimited Upside Potential with Limited Risk.

An INTEL long call option can provide the staying power in a potential larger trend extension.  More importantly, the maximum risk is the premium paid.

 

One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.

 

Choosing an option can sometimes be a daunting task with all of the choices and expiration months and strikes.  Simply put, traders want to buy a high probability option that has enough time to be right.

The option strike price is the level at which you have the right to buy without any obligation to do so.  In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.  

There are two rules options traders need to follow to be successful.

Rule OneChoose an option with 70%-plus probability.  The Delta is a measurement of how well the option reacts to movement in the underlying security.   It is important to buy options that payoff from only a modest price move.

 

There is no need to ONLY make money on the all but infrequent large price explosion.

Any trade has a fifty/fifty chance of success.  Buying options ITM options increase that probability.  That Delta also approximates the odds that the option will be In The Money at expiration.

 

Buying better options is more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.  
 
With INTC trading at $28.75, for example, an In The Money $25.00 strike option currently has $3.75 in real or intrinsic value.  The remainder of any premium is the time premium of the option.

 

Rule Two: Buy more time until expiration than you may need.  Time is an investor’s greatest asset when you have completely limited the exposure risks. 

Traders often buy too little time for the trade to develop.  Nothing is more frustrating than being right but only after the option has expired premature to the market move.

 

 

Trade Setup: I recommend the January INTC $25.00 Call at $5.25 or less.   A loss of half of the option premium would trigger an exit.

 

This option strike gives you the right to buy the shares at $100 per share with absolutely limited risk.   The option Delta is 77% so this position will act much like long shares at a sharply investment cost.

 

This January option has eleven months for development.
 
The maximum loss if the option expires worthless is limited to the $525 or less paid per option contract. A stop loss is placed at half of the option premium paid to lessen dollar exposure.

 

The upside, on the other hand, is unlimited.

 

 

The INTC option trade break-even is $30.25 at expiration ($25.00 strike plus $5.25 or less option premium).

 

If shares recover to the $36 breakdown, the option investment would gain 100%+.

 

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