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I wrote about Intel (INTC), back on August 13th and discussed that while I liked the stock, I was worried about the broader economic hurdles that could negatively impact shares as detailed in this article.

The main premise of the trade was exiting out of the shares at $26.88 and selling put options to reacquire a similar amount of shares at significantly lower prices. I was not a fan of buying calls at that time, but did leave some comments indicating that butterfly call spreads or call spreads (once we moved lower) could start to be obtained to regain some upside exposure.

The purpose of this article is to write about some call option strategies now that INTC is at $23.12 as of 9/21/2012, or 14% lower than where I recommend the selling of shares. We originally sold 5 January 2013 $24 puts and 5 $20 puts for a net credit of $4.55 (or $455) as a way of reacquiring the shares cheaper but generating some profits if we were not assigned.

One very simple strategy a trader could employ is buying 10 $25-27 January 2013 call spreads for $0.30 or $30 each for a total net debit of $300. This would be covered by the original net credit of $455 and give the trader $2 of upside if INTC were to rally to $27.

One complex strategy that one could employ is the call back spread which would perform significantly better than the call spread in a declining price environment or a flat market. The call back spread involves the sale of a lower strike call and the purchase of 2 higher strike calls. For Intel, I would probably choose the $25-26 strike.

A trader would sell 5 $25 calls for $0.45 each and buy 10 $26 calls for $0.27 for a total net debit of $45 ($225 net credit less $270 net debit).

The one pitfall of this trade is that if Intel rallies to $26 by January 2013 expiration, the trader would have $500 in losses from the short $25 calls and the $26 calls would be worthless. Most of the $500 in losses would be covered by the original net credit received from the put sales.

The primary benefit of this trade is that one picks up unlimited upside in the remaining 5 call options. If the company were to be trading above $26, the cost average in the shares would be $26.18 ($45 net debit + $45 loss/500 shares), which would still be a lower cost average than the original price the shares were sold at.

When I wrote the original article, consensus estimates from analysts had a 2013 EPS range of $2.22 to $2.85 with an average of $2.55. I was estimating an EPS of $1.80 in a weakening economy; which would have resulted in a 14.93 P/E.

Current consensus estimates have a 2013 EPS range of $1.80 to $2.64 with an average of $2.20. The EPS consensus average dropped by 13.72% since my original article. The one good thing is that at $23.12, the P/E against $1.80 in earnings would be 12.84, a much more comfortable number to be long shares.

Overall, I still think the economic worries have not gone away and that INTC could still face further weakness due to a economic weakening that drags the broad market down significantly. However, the original purpose of the selling of shares has been achieved and it's time to use the net credit to purchase back some of the bullish exposure dropped at $26.88.

Source: Intel: Time To Regain Bullish Exposure Through Options