I’ve been using ETFs more and more over the past year, but sometimes a good straight entry into a single stock seems like a better move. INTC moved above its highs from the past couple of months, but is still below its three month high by a few cents. On a one month basis it’s in an uptrend still with potential support as close as $20.50 to the downside. If the short trend line around $20.50 doesn’t hold, I think the $20 range could offer support too. The 50 day moving average is around $19.80 and moving higher each day. If all that misses, the $19 range has been a pretty good floor for months.
I wanted to add some tech exposure and considered the ETF QQQQ, but saw INTC was up while the Qs were down. That made me move outside of the ETF and to the individual stock I thought had a better chance of stay flat or higher through February options expiration. I took all of that and started checking premiums for the February options. The 20 strike looked OK with less risk to the downside than the $21 strike due to the extra $0.60 cushion ($1.00 difference in strikes minus $0.40 difference in premiums), but with what I perceive as limited downside for INTC I think the lower probability trade is worth the higher premium for me. While INTC was trading at $20.86 I sold four INTC February 21 naked puts (NQNU) for $0.90 each and received $357.20 after commissions.
I sold these options in the money to try to turn a bigger profit, but with a break even point 3.5% lower than the current trading price I still feel I have a good cushion. If I had sold the $20 strike instead I would have been short of my goal intake per trade, even with one more contract added in to get to a “full sized” trade. Instead I took on more probability risk of the options being assigned, but less overall exposure risk and greater reward potential. If I’m wrong and INTC drops closer to $19 and stays down there, I’ll still be able to sell $20 strike covered calls to bring in more revenue and worst case break even. To me, that’s a decent trade to make – if I’m wrong I break even over a few months of managing the position, if I’m right I make almost 4.5% in six weeks or around 38% annualized.