Intel Stock Today: Can This Short Straddle In Options Trading Make A $197 Profit?

Intel (INTC) is showing an implied volatility percentile of 85%. This means the current level of volatility in Intel stock exceeds 85% of all other occurrences in the last twelve months. And when volatility is high, it can be a good time to be an option seller rather than a buyer.

X

Let’s look at a short straddle trade in Intel stock.

This option trading strategy involves selling an at-the-money put and an at-the-money call with the same strike price and the same expiration date.

This trade generates a large amount of premium for the option seller, but it does come with risks. A short straddle is an unprotected trade, sometimes referred to as a “naked” trade. Naked options can be risky. Why? They expose the trader to potentially unlimited losses if the stock makes a big move.

However, if the trader is right and the stock trades sideways, large gains are also possible.

Intel Stock Today: Setting Up A Short Straddle

Assuming a trader believes that Intel stock will trade sideways over the next few weeks, focus on selling a Jan. 20-expiration put option with a 26 strike price. Then, sell a Jan. 20-expiring 26 call.

On Tuesday, an options seller could have reaped a premium of 97 cents per contract with the 26 put option. The 26 call could have generated premium of around $1.00.

Selling those two options would generate a total of $197 in premium per set of contracts. This translates into the maximum possible gain on the trade if INTC closes right at 26 on the day of expiration.

To work out the break-even price of the trade, take the strike price of 26 plus and minus the total premium received of $1.97. This gives us 24.03 and 27.97.

If Intel stock goes below 24.03 or above 27.97, the trade would start to suffer losses.

When In Vega

This trade in Intel stock is a short vega trade. So, if implied volatility increases early in the trade, losses could occur. 

Short straddles are an advanced option strategy. If all that sounds confusing, it’s best not to trade them. 

With a trade like this, the potential losses are unlimited and a lot higher than the potential gains. Thus, traders would want to be very confident that Intel stock is going to remain flat over the course of the trade.

A stop loss could be placed at the break-even points.

According to IBD Stock Checkup, Intel stock ranks No. 19 in its group and has a Composite Rating of 21, an EPS Rating of 26 and a Relative Strength Rating of 19.

Please remember that options are risky, and investors can lose 100% of their investment. 

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ

YOU MIGHT ALSO LIKE:

With FOUR Stock Acting Bullish, Call Options Offer Exposure At Lower Cost

Netflix Stock Today: How A Bull Put Spread Could Earn $115

Why This Real Estate ETF Could Net $425 With A Bear Put Spread Option Trade

Short Strangle On BX Stock Could Generate $245 In Option Premium