Intel looks like it may be finally carving out a bottom, after a relentless decline (by blue chip standards) that saw it give back all of its 2012 gains. The specter of a post-PC world continues to weigh heavily on INTC – the result of which is a stock that is FREAKING CHEAP! Who ever thought we’d see Intel with a P/E under 10 and a yield above 4%?
But is INTC a value trap like DELL – one that looks cheap all the way to the bottom? I don’t think so…but I always like to hedge my opinion. Hence we’ll experiment with a covered call strategy around an INTC long position.
Last Wednesday 10/31 we BOUGHT 100 shares of INTC at 21.72 and simultaneously SOLD a December ’12 call option for $0.46. This netted $37.74 after commissions (of $8.26), which would be a 1.74% return alone on our initial stake over a 53-day period, assuming a static share price.
We could do this 6 times a year for a total return of 10.4% – and factoring in the dividend, we’d be booking a cool 14+%, even if we merely stared at a static INTC share price.
Of course if we’re right about INTC being due for a bounce, the returns will be better (though ultimately capped – which is the trade off we are making by selling calls).
I think Intel is due for a bounce from these levels…but even if I’m wrong or early, these returns are not bad!
Intel forming a bottom? CMF creeps towards the mendoza line. (via StockCharts.com)