Thinking Outside the Box when Monitoring Options Action

Heading into Intel (INTC) earnings tonight all I could hear was bearish banter about the massive number of put options trading in Intel today, 323,614 to be exact, or 8X average. However, as I laid it out to my clients, most of the action looked to be hedging, Intel options are cheap and it is an under-performing name at historically low valuation. I just could not see that the 50,000 February $20 puts were being bought as straight bearish bets, requiring shares to fall more than 5% and be valued like a Bank.

I was not interested in trading Intel, because, frankly, it's boring and I did not see a big edge in applying an options strategy.

I was much more optimistic due to the events in the options market leading up to the Intel numbers.

1) I noted last week and this week the massive January $14 call buying in Applied Materials (AMAT)with more than 56,000 now in open interest, obviously a derivative play on Intel, and was actually a recommended purchase by Goldman's options team

2) The buyer of 100,000 OTM calls in Tech (XLK) yesterday that stuck out like a sore thumb, a play on not only Intel, but IBM and Apple next week.

3) The action that really set the tone was today around 10 Semiconductor names saw unusually bullish options buying, upside bets, and Intel is sure to move the group even though it is an "older" chip name.

A few examples include:

Cypress Semi (CY) massive buying in February $22 and $23 calls. I actually noted the big January call buying in this name early this week, which have since tripled in value.

KLA Tencor (KLAC) saw insane action with a block of 6,500 January $40 calls bought and the $39 and $41's also saw action, even the $50's oddly active.

Those two really stuck out but the same can be said for IDTI, MIPS, PMCS, and PWER.

It pays to think outside the box because the big money is not made in Intel. KLAC is up 5% after hours and AMAT is up 4.65%!