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Option Idea of the Week: Hewlett-Packard Company (HPQ)

Why HPQ could be poised for additional gains

by 1/10/2014 10:24:26 AM
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Hewlett-Packard Company (NYSE:HPQ) has been on a technical tear during the past year, gaining roughly 70%. More recently, the stock has outpaced the broader S&P 500 Index (SPX) by close to 12 percentage points over the latest three-month time frame, and tagged a near-two-year peak of $28.70 on Dec. 4. Meanwhile, the security's subsequent pullbacks were contained by its 32-day moving average, which has served as a floor since early October. As such, HPQ could be due for another bounce higher, particularly in light of some lingering skepticism on the Street.

Daily Chart of HPQ since September 2013 With 32-Day Moving Average

Jumping right in, the tech concern's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.45, confirming puts outnumber calls among options scheduled to expire within the next three months. This ratio registers in the 90th percentile of its annual range, signaling near-term traders have been more put-focused toward HPQ just 10% of the time during the past year. An unwinding of these put positions -- particularly among underfoot strikes in the February series -- could end up pushing the shares even higher over the next several weeks.

Elsewhere, despite some encouraging words from Barclays yesterday, sentiment among the brokerage bunch is also pessimistically skewed. Only four out of the 19 covering analysts have deemed the stock worthy of a "buy" or better endorsement, versus 12 "holds" and three "sell" or worse suggestions. What's more, HPQ's average 12-month price target of $27.14 denotes a discount to the equity's current price at $27.61. This leaves plenty of room for a wave of upgrades and/or price-target hikes, which could add more fuel to the security's fire.

Speculators wanting to wager on additional upside for Hewlett-Packard Company (NYSE:HPQ) may wish to consider buying the stock's in-the-money March 23 calls, which are presently asked at $4.80. However, traders wanting to tread more cautiously in light of the firm's upcoming quarterly earnings report -- tentatively scheduled for the week of Feb. 17 -- might want to think about initiating a bull call spread by simultaneously selling the March 32 calls, which sport a bid price of $0.32.


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