Pre-Earnings Option Activity Heats Up On Hewlett-Packard Company (HPQ)

Hewlett-Packard Company puts and calls are trading at an accelerated clip today

by Karee Venema

Published on Nov 25, 2014 at 2:33 PM
Updated on Apr 20, 2015 at 5:32 PM

Option traders have set their sights on Hewlett-Packard Company (NYSE:HPQ) today, as the company prepares to tell all in the earnings confessional after tonight's close. Overall volume is running at four times the expected intraday amount, and per the equity's 30-day at-the-money implied volatility (IV) -- which is up 5.9% at 25.6% -- short-term contracts are in high demand. Drilling down, buy-to-open activity has been detected on both the put and the call sides, as traders wager on HPQ's post-earnings trajectory.

Most active in today's session is the weekly 11/28 36-strike put, where 7,824 contracts have changed hands -- mostly at the ask price, hinting at buyer-driven activity. IV is up 13.2 percentage points, and volume outstrips open interest, making it safe to assume new positions are being purchased. Delta on the put is docked at negative 0.16, suggesting a slim 16% chance the option will be in the money at Friday's close, when the weekly series expires.

Meanwhile, on the call side, a fresh batch of bullish bets is being initiated at HPQ's weekly 11/28 38.50 strike. These calls are being scooped up for a volume-weighted average price (VWAP) of $0.55, making breakeven at week's end $39.05 (strike plus VWAP), in territory not charted by HPQ since May 2011. Gains will accumulate north of here, while losses are capped at the initial premium paid, should the stock settle south of the strike at expiration.

Looking over the past three quarters, HPQ's post-earnings price action tends to side with bulls -- good news for the recent crop of option traders who have targeted the stock. In fact, over the past three quarters, Hewlett-Packard Company (NYSE:HPQ) has averaged a gain of 4.6% in the session subsequent to reporting. Today, the equity is 1.4% higher to trade at $38.02 -- extending its year-to-date advance to an impressive 36%.

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