Tuesday, July 15, 2014

An Earnings Hedge with INTC

As mentioned in an earlier post, I have been looking to get out of INTC. Not because I think INTC is done with its run, but I have some apprehensions of a run up in INTC based on history. Following are my reasons to get out of it:

1. INTC has run up 22% this year over a lot of bullish talk in the semiconductor space
2. INTC has mode most of its run up in the last 3-4 months.
3. Semiconductors are a precursor to capital spending and generally runs up before the overall technology run
4. Semis are cyclical and by the time the capital spending theme takes hold, they have built up too much inventory
5. I just have too much technology in my portfolio and INTC is not the one I want to continue to hold.

Having said all this I say goodbye to a 4% yield with a heavy heart. So lets see what I like about it.

1. The tremendous tail winds it is experiencing right now
2. The 4% yield
3. A capital spending cycle that has just started
4. The confidence with which management took up its earnings projections for the year

The last point potentially bodes well for the current earnings call going to happen today. But I really cant afford to hold INTC through another disappointing cycle. So here is the hedge.

Sell 60% of my INTC holdings. This is all of my buy from 10 years ago at a cost of 30$. So the tax implications of the sale would be very minor as opposed to selling the remaining 40% which has a higher profit and hence greater tax implications. But I do want my upside if there is a surprise today on the call.

So Friday expiring call options with a strike of 31 at a cost of 90 cents. Anything above 40 cent upsdie will pay for the trade.

Fingers crossed. Hopefully with an upside... I will continue to hold the 40% for some more time bfore dumping it later this year.


  1. This one played out well. a 10% rally first day post earnings. Holding the remaining 40% of the protfolio for further upside.

  2. Finally I am out of this trade. At 35.50 I finally checked out of this stock. My rational being that semiconductors are always backward looking for a IT cycle and by the time the IT cycle is well in progress the semiconductors would have peaked. Besides my position in INTC was fairly small and I did not really want to add to it anymore at these levels. Hopefully I made the right call.