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The shares of Hewlett-Packard Company (NYSE:HPQ - 16.29) are enjoying broad-market tailwinds today, paring a portion of Monday's losses. However, the options crowd is gambling on a short-term pullback for the blue-chip tech titan, as evidenced by this morning's appetite for puts.
Within the first 90 minutes of trading, HPQ has seen roughly 9,700 puts cross the tape -- a 30% mark-up to its average intraday volume, and nearly three times the number of HPQ calls exchanged. Garnering the most attention has been the February 16 put, which has seen more than 5,200 contracts change hands. Most of the puts have crossed at the ask price, and implied volatility is trending higher, hinting at buy-to-open activity.
By purchasing the puts to open, the buyers expect HPQ to retreat beneath the $16 level by the close on Friday, Feb. 15, when front-month options expire. More specifically, the puts traded at a volume-weighted average price (VWAP) of $0.28, meaning the speculators will profit if HPQ breaches the $15.72 level (strike minus VWAP) within the options' lifetime. Nevertheless, even if HPQ remains north of the strike -- which hasn't been perforated on a closing basis in nearly a month -- the buyers' maximum risk is the initial premium paid.
Expanding our sentiment scope, today's affinity for long puts is par for the course for HPQ. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.56 stands just 6 percentage points shy of a 52-week peak. In other words, option buyers have initiated bearish bets over bullish at a near annual-high clip during the past couple of weeks.
As a result, the equity sports a Schaeffer's put/call open interest ratio (SOIR) of 1.24 -- higher than 98% of all comparable readings of the past year. Or, in simpler terms, HPQ's near-term options players have rarely been more put-biased during the last 12 months.
At last check, HPQ has added 0.7% to wink at the $16.29 level, but remains south of its formerly supportive 10-day and 20-day moving averages, which are on the verge of a bearish cross. Beyond that, the security is also staring up at its descending 200-day trendline, which rejected HPQ's rally attempts in early 2012.
Fundamentally, the company yesterday announced its foray into the low-priced laptop market via the $330 Pavilion 14.