Intel Options Trade: The Aftermath – T3 Live
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Intel Options Trade: The Aftermath

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Intel (INTC) reported earnings after the close yesterday, and that means it's time for an update on the calendar spread trade I suggested earlier in the week.

Here was the initial trade:

-Sell $36 call (this Friday's expiration) for 23 cents
-Buy $36 call (August 19 expiration) for 36 cents

Debit of 13 cents per lot (give or take 2 cents).

As it stands now, these options are trading at:

-Friday $36 call: 1 cent
-Aug 19 $36 call: 9 cents

So the spread is now worth 8 cents, or a loss of about 5 cents per lot.

That's nothing to celebrate, but it's not tragic either.

There is nothing wrong with eating the loss, but I would let the weekly calls expire worthless and stay long the August 19 calls for a possible rebound in case Mr. Market keeps raging higher.

And again, this shows why calendar spreads are a good way to take directional trades into earnings. By selling short-term calls, you are offsetting the most dangerous part of options earnings plays — the collapse of implied volatility after the report hits.

If you look at Intel put options today, many are not gaining or are not rallying much even though Intel is down 4.5%. This is because implied volatility was jacked, making the options expensive.

With calendar spreads, you have a lower cash outlay, and you shield yourself from some of the implied volatility collapse. Of course, you are still exposed to directional risk, which is hurting the Intel trade I discussed.