Options activity picks ahead of Intel results

SAN FRANCISCO/CHICAGO Tue Apr 13, 2010 3:32pm EDT

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SAN FRANCISCO/CHICAGO (Reuters) - Options investors appeared to be taking a bullish stance ahead of Intel Corp's (INTC.O) quarterly results on Tuesday.

Traders are pricing in a 3.5 to 4 percent move in the stock after Intel's report, according to TD Ameritrade chief derivatives strategist Joe Kinahan.

"I would say the options activity has been in the upside calls, which would lead one to believe that there is a bullish bias," Kinahan said.

By late afternoon, options volume was four times greater than average daily levels with about 247,000 calls and 119,000 puts traded, according to option analytics firm Trade Alert.

"It appears, with less than 90 minutes before Intel reports, traders are betting on better-than-expected earnings or guidance from the chipmaker after the bell," said Jon Najarian, a co-founder of optionMonster.com. "This could change but it is unlikely with so little time remaining in the session."

Shares of Intel have gained roughly 15 percent in the past two months, breaking its 52-week high on March 23 at $22.75 after rumors circulated that the world's largest chip maker might raise its guidance ahead of its earnings release.

The stock was up 20 cents at $22.74 late Tuesday afternoon on Nasdaq.

Chipmakers, whose products are found in computers, smartphones and other gadgets, are emerging from the industry's worst downturn in decades and are expected to benefit from renewed spending on technology by corporations in 2010.

Much of the optimism ahead of earnings has come from purportedly strong server sales, which analysts attribute to both Intel's new faster and more reliable chips, and tech spending growth in the business sector.

According to optionMonster data, about 54 percent of the April and May call options were bought on the offer, indicating sentiment is biased on the bullish side.

On the put side, only 44 percent of the April and May options were bought on the offer, also "suggesting optimism about tonight's earnings reports," Najarian said.

Investors often turn to equity call options, allowing them to buy a stock at a fixed price within a specified time period, to speculate on stock price appreciation. A put gives the right to sell stock at a fixed price by a certain date.

Wedbush Morgan analyst Patrick Wang said the unofficial "whisper" numbers, or current expectations of investors and analysts, slightly outpace the average expectations on Thomson Reuters I/B/E/S. According to that data, Wall Street expects Intel to report first-quarter revenue of roughly $9.84 billion, with a gross margin of 61.30 percent, and earnings of 38 cents per share, excluding items.

Wang said the whisper numbers show analysts expecting first-quarter earnings of 40 cents to 41 cents per share on revenue of $10.1 billion to $10.2 billion, and a gross margin of 62 to 62.5 percent.

"A good report is priced in already," he said, adding that if the company reports on the high end of the whisper numbers, but forecasts relatively flat revenues for the current second quarter, the stock will likely not move up.

Another point of interest will be inventories, which Intel already said will likely build in the first quarter. However, if they build too quickly, or too much, investors could react negatively.

Some analysts have said that unseasonably strong sales in the first half of 2010 could lessen sequential growth patterns investors look for in the seasonably strong back-to-school and holiday quarters.

"It's a question of whether we've gotten too hot too early," Wang said.

(Reporting by Ian Sherr and Doris Frankel; Editing by Richard Chang)

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