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Since touching a 10-year low of $11.35 in November, the shares of Hewlett-Packard Company (NYSE:HPQ - 16.16) have rebounded more than 42%. Nevertheless, it looks like options traders are bracing for a pullback for the tech titan, as evidenced by the growing affinity for puts on the major exchanges.
During Friday's session, speculators established new positions at the February 16 put, which saw open interest soar by more than 3,300 contracts over the weekend -- the most of any strike. Plus, the majority of the puts crossed the tape at the ask price, hinting at buyer-driven volume.
By purchasing the puts to open, the buyers expect HPQ to retreat beneath the $16 level within the next several weeks. More specifically, the puts traded at a volume-weighted average price (VWAP) of $0.66, meaning the buyers will reap a reward if HPQ breaches the $15.34 level (strike minus VWAP) by the closing bell on Friday, Feb. 15. However, even if the stock extends its recent rebound, the most the buyers can lose is the initial premium paid for the puts.
As alluded to earlier, Friday's appetite for bearish bets merely echoes the growing trend 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 0.78 registers in the 64th percentile of its annual range, suggesting option buyers have picked up HPQ puts over calls at a faster-than-usual clip during the past couple of weeks.
Most popular has been the February 15 put, which has seen open interest skyrocket by roughly 16,000 contracts during the past 10 sessions. This out-of-the-money strike now harbors more than 33,500 puts outstanding. Nevertheless, the 18 strike remains home to peak put open interest in the back-month series, with more than 36,250 contracts in residence.
Ahead of the bell, the aforementioned February 16 puts are set to move further out of the money, with HPQ pointed 1.6% higher in pre-market trading. Bolstering the stock is a (relatively rare) bullish analyst note, with JPMorgan Securities upgrading HPQ to "neutral" from "underweight" and lifting its price target to $21 from $15. The shares, according to the brokerage firm, "just cannot get much worse." Currently, HPQ has earned just one "buy" or better endorsement, compared to 15 "holds" and seven "sell" or worse ratings.