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Intel: A Cheaper Way To Hedge


In the comments on our last article on hedging Intel, readers raised some interesting points.

One was a concern about the cost of hedging. Here, we show an Intel hedge that has a negative cost.

We also address two other approaches to limiting Intel risk.

A Less Expensive Way Of Hedging Intel

A couple of questions by readers on our previous Intel (NASDAQ:INTC) article (Locking In Intel Gains) concerned the cost of hedging. We'll address those here, as well as another reader comment that touched on trading costs relating to hedging. First, let's recap the less expensive of the two Intel hedges in our previous article.

This was the optimal collar, as of Thursday's close, to hedge 1,000 shares of INTC against a >15% drop by late April, while not capping an investor's upside at less than 11% by then (screen captures via the Portfolio Armor iOS app).

As you can see above, the net cost of this hedge (calculated conservatively, using the ask price of the puts and the bid price of the calls) was $260, or 0.72% of position value. Opinions differed regarding this cost, as is reasonable, considering different investors have different perspectives.

Reader "uls2" wrote:

I had never thought about this type of hedging before. Figured that I own my INTC shares for the dividends they pay me, and that I will transfer any risk of short-term price losses to my heirs.


But I will give your thoughts some consideration. It looks like the "collar" protection can be had for a very reasonable fee. Trouble with it, so it seems to me, is that you may lose the shares in that part of your portfolio, if the price goes thru the...