Intel, eBay, Microsoft Earnings Due This Week

Playing the Expiry: October 20, 2012.

The condition of the technology sector will be in focus this week as Intel (INTC), eBay (EBAY), and Microsoft (MSFT) will report third quarter earnings. Analyst predict that this quarter's earnings will be soft and may be lowered than expected. Last week, Advanced Micro Device's (AMD) management admitted that their third quarter earnings, due October 18, will be much lower than guided, knocking the stock to a 3-year low. And it could go lower when the official numbers are reported because management often puts a positive spin on things.

But we'll have to wait a few days for those reports. In the mean time, three bigger stocks with opportunities await, and here at this blog, we only care about the knee-jerk reaction by traders following earnings. Let's examine the three stocks that could make you some serious coin. Note, all three stocks report after-hours.

Intel - Tuesday

The shares fell in sympathy when AMD informed investors of a weak quarter. The sell-off means that a disappointing quarter has been partially priced in and there is a chance the shares will rise. Conversely, on the bullish side, the shares have been sliding for the past month and chart traders will note that the stock is trading at the bottom of the Bollinger Bands. There could be a short-term tug of war post-earnings with fundamentals wanting to sell and technicals suggesting a rebound. This means the stock could essentially trade very flat and option sellers may have a good pay day if this transpires.

Intel is a stock that often closes the gap retracing any drop and falling after a rebound, so taking assignment and waiting it out is an alternative to taking a loss or closing out any potential in-the-money position. We propose selling the 22.50 calls and 21.00 puts. Based on Monday's close, the premiums were $0.19 and $0.22 respectively with the stock at $21.73. That will earn you 7.36 per cent return on margin and a break even range of $22.91 to $20.59 or upside protection of 5.43 per cent and downside protection of 5.25 per cent.

eBay - Wednesday

This online retailer and auctioneer typically rises on earnings. In fact, the shares have risen all four times in the last year after earnings, which could indicate a trend. The rises have either been sharp or tame so upside protection will be very important here. It may even be wiser to ignore the call option altogether, but this could also limit your profitability.

The range of protection I see fit is 7.5 per cent and increased volatility has also increased option premiums. The shares closed at $47.40; selling the 50.00 call and 45.00 put will provide the protection needed. The premiums are $0.49 and $0.57 respectively. Total payout on margin is 9.35 per cent; break-even is $51.06 to $43.94 or +7.72% to -7.30%.

Microsoft - Thursday

Shares of Microsoft often remain within the trading range depicted by the Bollinger Bands. As a result, a trader could simply sell the call at the upper band price and the put at the lower band price. However, Microsoft has very poor premiums and this is the least promising trade. To earn at least 1 per cent return on market value means the trader has to sell the 30 call and 29 put for $0.21 and $0.23 respectively. The break even range is $30.44 to $28.56 or +3.15% to -3.22%. The return on margin is 5.45 per cent, which is still attractive, however, the low break-even range is a concern.

Good luck.