Options Traders Flocking To HPQ Stock Ahead Of Earnings

HPQ stock tends to rally after meeting up with its 40-day moving average

Patrick Martin
Nov 20, 2017 at 3:21 PM
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Software solutions provider HP Inc (NASDAQ:HPQ) will report fiscal fourth-quarter earnings after the close tomorrow. Furthermore, HPQ shares have recently pulled back to a historically bullish trendline. Below, we will take a look at this potential buy signal, and examine how HP stock could fare in the coming weeks.

HP stock has had a productive year, tacking on nearly 50% in 2017 alone. The shares touched a six-year high of $22.30 on Oct. 13 after raising its full-year outlook. Since hitting this notable milestone, though, the software stock has pulled back to a key trendline.

The equity is now trading within one standard deviation of its 40-day moving average, after the trendline had served as support since mid-August. According to Schaeffer's Senior Quantitative Analyst Rocky White, following the last seven pullbacks to the 40-day moving average in the past three years, the stock was up an average 3.3% one month later, and was higher 71% of the time. A jump of similar proportions would send HPQ past the $22.50 region and toward a new six-year high.

Unfortunately, HP stock has had a shaky earnings history lately. HP shares have closed lower in the session subsequent to the company's earnings report in six of the past eight quarters, including a 6.8% drop last November. The equity has averaged a one-day post-earnings move of 5.9%, regardless of direction, over the last eight quarters. This time around, the options market is pricing in a one-day swing of 7.1%, based on the stock's at-the-money (ATM) implied volatility (IV) data.

In the options pits, speculators have taken a seemingly bearish tone in recent weeks. The security's Schaeffer's put/call open interest ratio (SOIR) of 1.17 ranks in the 86th percentile of its annual range, pointing toward an unusual put-skew among near-term options traders.

At last check, 15,653 options have changed hands on HPQ today -- three times what's typically seen at this point in the day, and volume is pacing in the 91st annual percentile. The weekly 11/24 21-strike put is seeing heavy attention, and buy-to-open activity looks likely. So traders are betting on the stock falling below $21 by week's end, when the contracts expire.


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