Intel (INTC) continues make a transition from the PC market to the mobile market because of the gradual morph in technology as out computers become instruments we carry with us now. Let's take a look at the challenge the company faces as it makes this transition. I expect the stock to move in a trading channel for a period of time this year through the transition and this will provide an opportunity for a short term income strategy.
Seeing the writing on the wall, Intel entered the "mobile computing" market early this year. More than half the value of Intel is still derived from the PC market and this is dangerous if the PC market continues to shrink Starting with the floods in Thailand impacting hard disk shortage and then the western economic struggle reaching the emerging markets (the Asian-Pacific region recorded a 1% year over year decline), the PC industry has seen better days. It will continue; emerging markets will be the market of the future for PC's. Presently the Asian-Pacific region accounts for about 58% of Intel's revenue.
How well can its business model adapt to the mobile market which is so different from the PC market? ARM Holdings (ARMH) is a mobile market chip producer and has its tentacles in 90% of all smartphones and is also found in tablets. As these two companies become competitors, can Intel keep up with ARM? Presently, Intel's superior processors also consume a lot of energy and this is problem in the mobile market where battery life is key issue. So it is working on driving down power consumption. At the same time it has been increasing the energy efficiency in its Atom Platform making the Atom Z2460 Medfield chip. This chip can be found in smartphones from India like Orange, Lenovo and Lava International. It also hopes to have its Ivy Bridge processors in numerous tablet designs.
While Intel moves into ARM's territory, so it is pushing into Intel's. It is exploring partnering a move into energy-efficient chips into PCs and low-power servers. But the future battle is in the mobile market. Computing is no longer a task we do, but a way of life we carry with us. And this is where ARM dominates right now. But Intel is making strides in the mobile market bit by bit. While it does, I do not expect to see much movement in the stock this year which gives us an income opportunity using options in our strategy.
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Technically Speaking
Intel finally broke through a bearish trend the beginning of August after almost 3 months of lower lows. In the beginning of July the 50 day MA became resistance and the break through has revealed a possible trading channel for the stock. Both the RSI and the MACD appear to be following the stock and are not revealing any divergence that would tell us of an upcoming change in direction. The stock has a good base established I can use as support. Since it is now at the top of the Bollinger Bands, I expect the stock to reverse direction and move back down toward support. A significant sign of a reversal may appear if we see the stock start to use the 50 day MA as support instead of resistance now.
The Options Play
Intel is presently trading at 26.33 and I expect it to bounce off the Bollinger bands so I am looking at a bearish options strategy. I am going to buy the first option "in the money" to accelerate the play.
- Buy the November put with a strike of '27' (priced at $1.62)
- Sell the November put with a strike of '26' (priced at $1.09)
- Net Debit to Start: $0.51
- Maximum Profit: $0.49
- Maximum Risk: net debit
- Maximum Length of Play: 3 months
Reasoning behind the Play
- Slow down in the PC market and shrinking Asian-Pacific economy.
- At the top of the Bollinger Bands, I would expect the stock to pull back.
- I see no catalyst to push the stock up at the present.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
