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Hewlett-Packard Company (NYSE:HPQ) is enjoying a halo lift today, thanks to a number of well-received fundamental developments from its sector peers. At last check, the stock was up 2.2% to trade at $34.88 -- and option traders are responding in kind. In fact, calls are trading at 11 times the average intraday rate, and are outpacing puts by a more than 7-to-1 ratio.
While HPQ's August 36 call is the most active strike -- and could potentially be seeing sell-to-open activity -- it appears a number of speculators are betting on the stock to extend its upward trajectory over the next 4.5 weeks, and rally to levels not seen in nearly three years. Specifically, the equity's August 34 call has received notable attention, with 9,439 contracts on the tape. The majority of these calls traded at the ask price, and implied volatility is higher -- two indications new positions are being purchased. This theory is echoed by sources at Trade-Alert.
The in-the-money calls are being purchased for a volume-weighted average price (VWAP) of $1.27, making breakeven at the close on Friday, Aug. 15 -- when back-month options expire -- $35.27 (strike plus VWAP). Gains are theoretically unlimited with each additional step north of here, while losses are capped at the premium paid, should HPQ finish south of the strike at expiration.
On the charts, Hewlett-Packard Company (NYSE:HPQ) has not traded north of $35.27 since August 2011. However, the stock has been on a tear in 2014 -- up nearly 25%. What's more, the security has been making a string of higher highs recently, and today, HPQ came within striking distance of taking out its two-year high of $35.20, which was tagged on June 13.