Analyst Downgrade Draws HPE Option Bears

Hewlett Packard Enterprise shares are set to breach a key trendline

Mar 12, 2019 at 1:11 PM
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The shares of Hewlett Packard Enterprise Co (NYSE:HPE) are in the red today, after some negative analyst attention. Specifically, UBS downgraded HPE stock to "sell" from "neutral," and cut its price target to $13 from $17 -- an 18% discount to yesterday's close -- stating, "We do not see a 2H19 recovery," as growing cloud demand will weigh on on-premises sales. Against this backdrop, HPE put volume is accelerated today.

Hewlett Packard Enterprise stock was last seen 3% lower at $15.30, set to close beneath its 200-day moving average for the first time since late January. The shares are now testing the $15 area, which represents a 38.2% Fibonacci retracement of HPE's rally from its Dec. 26 low of $12.09 to its Feb. 26 peak of $16.96 -- a level that also acted as resistance in the second half of 2018.

HPE stock chart march 12

So far today, HPE has seen about 1,700 puts cross the tape -- almost two times its average intraday volume, and more than double the number of calls traded. Most active is the May 13 put, which saw a block of 1,000 contracts change hands at the ask price earlier. Assuming the puts were bought to open, the option bear expects HPE stock to retreat beneath the $13 level -- which coincides with UBS' new price target -- by May options expiration.

Today's appetite for bearish bets runs counter to the recent trend. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly four calls for every put in the past two weeks. HPE's 10-day call/put volume ratio of 3.82 is in the 68th percentile of its annual range, pointing to accelerated call buying over put buying in the past two weeks.

On the other hand, Hewlett Packard Enterprise is no stranger to skepticism among analysts. The security boasts just three "buy" or better ratings, compared to eight "holds" and one "sell." Meanwhile, the consensus 12-month price target of $16.93 -- right in line with HPE's recent top -- represents a premium of just over 10% to the stock's current price.


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