Intel Corp (INTC) stock has been moving higher, and investors may be signaling a bottom in INTC. This is from a large, unusual volume of out-of-the-money INTC put options that expire in two weeks. This is because INTC is undervalued, based on its potential free cash flow projections.
INTC is at $48.50 in midday trading, which is about where it has been trading for the past two months. However, it's up from a recent low of $41.20 on March 30, as investors have been more positive about the stock's prospects.
One reason may be the potential end to the Iran war. That could ease supply constraints for the company's semiconductor activities worldwide. Moreover, INTC stock may be seen as undervalued.
One reason for this is that Intel is still generating positive free cash flow (FCF), at least on an adjusted basis. That may not be what the market currently believes and has been dampening the share price.
Intel's FCF is Higher Than Most Believe
For example, Intel reported that its Q4 adj. FCF was $2.2 billion. That can be seen in the table it provided on page 16 of its Q4 presentation deck.
This works out to 16.0% of its $13.7 billion in Q4 revenue. Moreover, the CFO said in his prepared remarks that during the second half of 2025, it generated $3.1 billion in adj. FCF, mainly from a doubling in its operating cash flow.
That works out to an H2 adj. FCF margin of 11.3%, given the past 2 quarters of $27.3 billion (i.e., $3.1b/$27.3b = 0.113).
So, going forward, the company may generate between 11.3% and 16% of its revenue as adj. FCF. That provides a basis to value INTC stock.
For example, analysts now project $53.83 billion in revenue this year and $57.95 billion next year. That works out to $55.89 billion over the next 12 months (NTM).
Therefore, using a 15% projected adj. FCF margin (I err on the high side of an average FCF margin):
$56b revenue est NTM x 0.15 = $8.4 billion adj. FCF
This could result in a potential valuation of $280 billion for Intel stock using a 3.0% average FCF yield (typical for the industry):
$8.4b / 0.03 = $280 billion
That is about 15% higher than today's market value of $243.6 billion, according to Yahoo! Finance.
In other words, the target price (TP) for INTC stock is 15% higher:
1.15 x $48.50 = $55.78 TP
However, a lot has to go right for this to happen. As a result, it makes sense for value investors to set a lower potential buy-in point and get paid while waiting.
That could be why there is so much unusual put option activity today. Investors are shorting out-of-the-money (OTM) puts to gain income and set a lower buy-in.
Unusual INTC Put Option Activity
This can be seen in today's Barchart Unusual Stock Options Activity Report. It shows that over 6,800 put option contracts have traded at the $47.50 strike price for expiry on April 17. This is below today's trading price (i.e., out-of-the-money).
That volume of put options is more than 68 times the prior number of put options outstanding. That is highly unusual, indicating institutional interest in these put options.
The most likely scenario is that institutions initiated these trades by shorting these puts to gain income, as well as setting a potentially lower buy-in point.
The reason is that the premium is high, $2.06, for this put option. That works out to an immediate yield of 4.34% for the next two weeks:
$2.06 / $47.50 = 0.04337 = 4.34%
Moreover, even if INTC falls to $47.50 within the next 16 days, the investor has a much lower breakeven point:
$47.50 (upon assignment) - $2.06 income received = $45.44 breakeven
That is over $3.00 lower than today's price, i.e., a 6.3% lower breakeven point. This provides a good entry point for value investors, and provides good income in case INTC doesn't drop to $47.50.
The bottom line is that INTC looks undervalued, and shorting out-of-the-money puts is an attractive way to play the stock.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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