How to Play Intel Volatility

By TENNILLE TRACY Intel's shares have bounced around in recent months, losing half their value between August and November and then gaining 25% during the past three weeks. The price of Intel's options, however, don't reflect the severity of recent moves and the situation presents a trading opportunity for investors who believe Intel shares will continue to travel a bumpy path. The options market is pricing in a lower amount of volatility than what the stock has actually shown. Specifically, the two-month implied volatility on Intel options clocks in at 51.3, whereas the two-month historic volatility is 57.5, according to Credit Suisse Group. Because volatility plays such a crucial role in options prices, investors might be able to take advantage of the disparity between the implied and historic volatility levels by conducting a "delta neutral" trade in Intel. These types of transactions are designed to give investors exposure to volatility in the company's stock. The success or failure of the transaction doesn't hinge on the direction of the stock. In this case, investors could buy Intel stock and couple it with a purchase of put options -- buying a May $14 put for every 36 shares they buy, said Sveinn Palsson, an equity derivatives strategist with Credit Suisse. "The trade is aimed at profiting from the fluctuation, or volatility, in Intel shares, regardless of the direction the stock moves to," Mr. Palsson said. He notes that the trade requires daily maintenance in order to stay delta neutral. Specifically, investors would want to sell shares if Intel moves higher and buy shares if Intel moves lower. Write to Tennille Tracy at tennille.tracy@dowjones.com