Replies to post #55042 on Intel Corp (INTC)

[alan81]

AMD covered calls as INTC hedge...
I think going short AMD is a method of covering INTC as they do move together much of the time. That said, your covered call is really a long position, not a short. You lose money if it goes down and you make money if it goes up.
The way you lose with your strategy is if the PC market falls apart and both companies drop. Now that you are retired, volatility is a very important indicator... and using your spare change to buy covered calls in AMD does not diversify you at all.
I think you are right that at the current levels AMD is not a very good short candidate, so the question is if you think it is a good long candidate. My personal opinion is it is not a long candidate until somewhere below 5.
If you really have a lot of INTC (say more than 25% of assets) I would consider selling some and perhaps covering some. You need to watch tax consequences as you back out of the INTC position.
In terms of where to put that spare change, I would vote for some international iShares funds.
--Alan

[wbmw]

Maui, I don't see much of an upside to your theory, at least not today. There has got to be additional bad news on the horizon with their current products. They have a big write-off coming, and in 2008 they are only going to fall further behind in competitiveness, while being further disadvantaged with costs. They have also made promises of operational profits in Q3 2008, which I think is unlikely without big cost cutting.

On the other hand, there are a few catalysts that could take the stock higher. If AMD announced layoffs, it would indicate that they are serious about restructuring the company, and that could lift the stock. If Ruiz resigned, that would be seen as good news. If rumors of a takeover or acquisition came out, that would be seen as positive as well.

But as these things do not happen, AMD seems to have an inevitable future. They cannot sell their products without lowering prices further. And they can't sell tri or quad cores without pricing them well below Intel's, even though the larger die size will lower their margins.

I can't predict what will bail AMD out of this mess, but it won't be pretty. If you want to buy in, wait until the stock goes below $5. After the ATI write-off, the book value will drop significantly.

[Sarmad]

Maui,

>> Do you see a scenerio where AMD goes down lot more from current level and Intel doesn't increase their EPS significantly from a weak AMD?

Sounds like an ingenious plan. Either way you come out ahead. Personally I wouldn't have the patience to hold that many shares of AMD to '010. So I wouldn't do it. But I think the numbers do work out like you stated.

edit. I see there were other responses. None addressed the question, which is demise of AMD will drive INTC up so much that losing $4/sh is just a minor cost. And if AMD survives, then $7.50 is a very likely share price.

Anyway, I still wouldn't do it. There is plenty of incremental profit available to be made in selling INTC shares when they spike and buying when they retreat.