(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Chipmaker stocks have been walloped over the past week, but at least some traders are betting that shares of Intel Corp. (INTC) and Micron Technology Inc. (MU) may be due for a rebound over the coming few weeks. There have been some significantly sized bets placed that shares of the pair would both rebound by over 10% by options expiration in mid-June. The bullish come as both stocks have fallen since April 18.
The broader iShares PHLX Semiconductor ETF (SOXX) has fallen by over 7% from April 18 through April 23, while shares of Intel have fallen by over 4.5% and Micron by more than 6%. The recent weakness in the group started when Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) reported a weaker revenue outlook than analysts were forecasting, prompting fears of smartphone weakness.
Intel is expected to report first-quarter 2018 results on Thursday after the close of trading. Analysts are forecasting earnings growth of nearly 9% to $0.72 per share, while revenue is seen climbing by only 1.9% to $15.07 billion. But some options traders are betting shares of Intel rise to approximately $56 by options expiration on May 18, a jump of roughly 10% from its closing price of $51.53 on Monday. Open interest on the $55 calls as has been steadily climbing since early April and currently stands at nearly 45,000 contracts, more than double the level at the start of the month.
The $52.5 strike price calls heavily outweigh the number of puts with nearly 57,000 open contracts to only 9,500 open puts contracts, again another bullish indication, on traders betting shares of Intel rise.
Micron shares have also seen bullish option activity with nearly 43,000 open call contracts at the $55 strike, set to expire on June 15, with a an increase of almost 19,000 contracts on April 23. For the options to be profitable, the stock would need to rise above $56.15, a gain of roughly 14.5% from the stocks closing price of $49.02.
Both stocks have come under considerable pressure in recent days, which is worth noting when a contrarian viewpoint enters the marketplace. But with Intel scheduled to report results after the close of trading on Thursday, the outlook for the traders could change drastically. For now, at least, some traders are betting the recent sell-off will be a short-lived one.
Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.