Intel jumped yesterday but is facing what appears to be a large bearish position.
optionMONSTER systems show that a trader bought 14,000 July 18 puts for the ask price of $0.16 against open interest of 20,509. At the same time, he or she sold 42,000 July 16 puts for the bid price of $0.04 in volume far above open interest of under 2,000, so that was a new position.
The trader could be rolling a short puts to a lower strike while greatly increasing the size of the position, but it is far more likely that this is a bearish ratio spread . The latter would take a maximum profit if INTC is down around $16 by expiration in mid-July. (See our Education section for more on vertical spreads .)
INTC rose 3.13 percent to $21.75 yesterday. The chip giant's shares were down at a 52-week low near $19 in November but are back near resistance around $22 that has been in place since early October.
More than 353,000 INTC options traded in the session, compared to a daily average of 63,000 in the last month.
The optionmonster article suggests that someone bought 14,000 JUL $18 PUT option contracts for 16 cents. The only reason someone would buy $224,000 worth of puts (assuming they were held through expiration) would be if the buyer expected the price of Intel to drop to below $18 - $0.16 = $17.84. The "break even point" for this trade would be if Intel dropped to $17.84. The SELLing of the 42,000 JUL $16 PUT option contracts mitigates the cost by crediting back $168,000 of the $224k.
The more of these I see, the more humous they get. The actual headline reads "Huge bearish strategy is targeting Intel". After that headline, they then use the phrase "could be" several times in the article, indicating that they are guessing. There is simply not enough transparancy in options to know if a bet is BEARISH or BULLISH or NEUTRAL or VOLATILITY bets.
14,000 July 18 PUTs at 16 cents = $224,000
42,000 July 16 PUTs at 4 cents = $168,000
If the two trades were linked, the different would be $56,000. Is a $56,000 bet huge?
It could be insurance through next Tuesday's earnings where the trade could be simple insurance. After the earnings report, you just sell the 14,000 puts back at a small loss and let the 42,000 $16 puts expire worthless at a profit. Huge BEARISH BET? No.
There was a lot of option transactions yesterday and there will be through next Tuesday close.