Home run for some buyers of long-dated Intel calls

July 16, 2014 07:19 AM

Over the course of the past month, buyers targeting Intel Corp. (NASDAQ:INTC) call options expiring in January 2016 (some 37% above its June average trading price) have driven open interest in 40.0 strike calls from 6,000 contracts to more than 33,000.

That pool of open interest heading into Tuesday’s earnings was valued at $2.6mm. During that timeframe, call options at the $40.0 strike have traded in a range spanning just 49-86 cents. Today, those call options have jumped by around half to trade at $1.20 each.

The number of established contracts at the 40.0 strike afford holders buying rights to $110.9mm worth of stock in the event that shares in Intel eclipse the strike price by expiration in 18 months. The strike price is now only 19% above the current traded price after the company reported results suggesting the two-year slump in sales of personal computers may have ended as consumers drop their fascination with smartphones in favor of laptops and desktops.

The delta on the 40.0 strike options, or likelihood that shares will land in the money by the time the options expire, now stands at one in four. It also indicates a roughly 25 cent increase in the premium of the 40.0 strike call option should Intel add $1.00 to its share price. The cost to purchase the entire open interest today for those options has increased to $3.9mm as shares in Intel jumped by 6.0% to $33.63 post earnings.

Intel January 2016 40.0 strike call option open interest

About the Author

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.