The title today might seem suspicious because Intel Corp. (Ticker: INTC) has not cut a dividend for as long as I can remember.

That is 30 years of looking at and trading the company.

Intel is going to spin out its autonomous driving unit, Mobileye, so there could be some pre-hedging shenanigans going into that corporate action.

Also, every chip stock is off 50% from its highs – Advanced Micro Devices Inc (Ticker: AMD) and Taiwan Semiconductor Manufacturing Inc (Ticker: TSM) to name a few, but they are all there.

But very few semis look like INTC.

Let’s find out why.

When Looking at Dividends, Look at the Reversal Conversion

This is an ancient art of trading options where traders added up the call and put prices to create synthetic stock and short stock against them to create an arbitrage in the markets.

Traders kept markets in line like that for a decade or more before more automated systems came into play.

The reversal conversion has the expectation that the trader will have to pay the dividend on the short stock but get to keep the short interest rebate. This is known as the cost of carry on a reversal/conversion.

It works the opposite of when retail traders have to pay interest on the long stock they borrow.  Traders loan stock when they short it, collecting the interest.

A long call and short put at the same strike in the same expiration has the same risk characteristics as long stock. Add call price and subtract the put price to the strike and get the stock price …

The difference is calls do not get dividends, so those options combinations do not get a dividend like stock does.

For Instance …

The INTC Jun. 16 25-strike combination of call and put is $4.85 less $2.44 or $2.41”

Added to the strike, that is $27.41, which looks great with the stock trading $27.70 for a .29 discount.

But there are three dividends coming for a $1.095 against-a-short rebate on stock of .51.  All those numbers need to satisfy the Put Call parity relationship below

And they don’t.

I have it around .31 off, which means traders are expecting the dividends to be less because the short rebate in the stock will not cover the dividend cost.

Now, this might be a little heavy for a newsletter, but I did cover it in the Option Pit Mentoring Small group session.

So I closed my INTC stock in the Mentoring Div+ Strategy yesterday.

Once the smoke clears, I will revisit INTC. As I mentioned, every semi is down 50% or more from crazy prices, so they are getting close to the bottom here.

The Rundown

Power Income Trader

Bill was moving like crazy on the big rally yesterday with call and call spread closes in the Silver Trust (Ticker: SLV) of 77%, Barrick Gold Corp (Ticker: GOLD) for 33% and Sandstorm Gold LTD (Ticker: SAND) for 44% gain.

Big Money Flow

Mark and I rolled out of Marathon Oil Co. (Ticker: MRO) for a 68% gain.

To Your Trading Success,

AG