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Options trading on Hewlett-Packard Company (NYSE:HPQ) was considerably slower than usual yesterday, with total volume arriving at about 55% of its norm. While the stock is up an impressive 55.9% year-to-date to wink at $22.17, a recent earnings-related pullback had a number of traders betting on additional downside on Tuesday.
In view was HPQ's January 2014 24-strike put, where over 6,000 contracts -- including two blocks of around 2,300 contracts each -- crossed the tape at a volume-weighted average price (VWAP) of $3.20. Since all of the puts changed hands at the ask price, and open interest surged by more than 4,700 positions overnight, most of yesterday's activity was likely of the buy-to-open sort.
For the speculators to win on their bearish bets, Hewlett-Packard Company (NYSE:HPQ) must descend to $20.80 (strike price less VWAP) by January options expiration, with additional gains for each successive step south. However, if the shares refuse to make the move -- which is very possible, seeing as how they've run into potential support at the $22 level -- the most the traders can lose is the premium paid.
Furthermore, as my colleague Andrea Kramer noted last week, betting on HPQ's downside could be a dangerous proposition. Along with widespread pessimism, the stock exhibits the type of fundamental and technical strength that may actually make it worthy of a potential contrarian play.