Huge, Unusual Intel Put Options Volume - A Bullish INTC Signal

Today, large, unusual put option volume in Intel Corp. (INTC) stock signals a bullish outlook. The puts are at-the-money strike prices with a 4% yield to short sellers. This signals institutional investors are willing to buy INTC.

INTC is up 9% today at $57.87 after Intel posted on X yesterday that it is set to collaborate with Tesla (TSLA) and SpaceX, both Elon Musk companies, to make chips for Musk's new Terafab project (so far, no press release).

INTC - last 3 months - Barchart - April 8

That development could significantly increase Intel's cash flow. I described the company's strong free cash flow (FCF) prospects in a Barchart article last week, “Intel Has Unusual Put Option Volume - Signals Upside in INTC Stock.”

What INTC Stock is Worth Now

I showed that, based on management's guidance and analysts' revenue projections, Intel could generate $8.4 billion in adjusted free cash flow over the next 12 months (NTM).

Using a 2.50% FCF yield metric, that would lift its market value to $336 billion (i.e., 8.4b/0.035 = $336b). That is 15% higher than INTC's market cap today of $291.9 billion, according to Yahoo! Finance.

In other words, INTC stock could be worth $66.55 per share (i.e., 1.15 x $57.87, today's price).

Moreover, analysts are now likely to raise their revenue forecasts for Intel over the next several months. That could significantly increase its adj. FCF forecasts and, as a result, INTC stock's underlying value.

So, no wonder there is huge options activity in INTC stock.

Today's Unusual Put Option Volume is a Bullish Signal

The puts trading today in huge volume are at the $57.00 strike price for expiry on April 17, 9 days from now. This volume is almost 28 times the prior number of puts outstanding at $57.00, likely from institutional investors.

This can be seen in today's Barchart Unusual Stock Options Activity Report (see table below).

INTC puts expiring April 17 - Barchart Unusual Stock Options Activity Report - April 8

The premium the short-put investors who likely initiated this trade is $2.32. That means the short-put investors collect an immediate 4% yield:

  $2.32 / $57.00 = 0.0407  = 4.07%

It means that these investors, who have to secure cash collateral of $5,700 for every put with a “Sell to Open” order, immediately make $232.

As a result, even if INTC falls below $57.00 on or before April 17, these investors have a lower buy-in breakeven point:

  $57.00 - $2.32 = $54.68

That is 5% lower than today's price. In other words, these investors are happy to buy into INTC stock at a price 5% lower. They see the potential upside in INTC stock, as I showed above.

Downside Risks and Mitigation Factors

Now, buyers of these puts also think INTC will fall much further below this breakeven point. After all, INTC has shot up a great deal recently.

This could result in potential unrealized losses for cash-secured short-put investors, especially if INTC stays well below $54.68 for an extended period.

But, at least these investors have potential upside. They can also repeat this trade (i.e., a 4% yield every 9 days works out to a 40% total return over 3 months). 

In addition, after being assigned to buy INTC stock, these investors could sell covered calls to mitigate any unrealized losses.

The bottom line is that INTC stock looks cheap here. Shorting at-the-money and out-of-the-money puts in INTC for near-term periods is a potential way to play Intel's upside.