Filed under: Major movement, Deals, Good news, Hewlett-Packard (HPQ), Options, Technical Analysis, Technology
Hewlett-Packard Co. (NYSE: HPQ) shares are trading higher this day on news that HP is buying privately held and Australia-based Tower Software as part of the company’s effort to increase its business software operations. Tower Software produces software for documents and records management. If you think that the company won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on HPQ.
After hitting a one-year high of $53.48 in November, the stock hit a one-year low of $39.99 in January. HPQ opened this morning at $46.11. So far today the stock has hit a low of $46.11 and a high of $47.46. As of 11:40, HPQ is trading at $47.42, up $1.76 (3.85%). The chart for HPQ looks neutral and improving, while S&P gives the stock a bullish 4 Stars (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $40 range. A bull-put credit spread is an options position that combines the buy and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just 7 weeks as long as HPQ is above $40 at May expiration. Hewlett-Packard would have to fall by more than 15% before we would begin to lose money.
HPQ hasn’t been below $40 by more than a penny at all in the past year and has shown support around $46 recently. This trade could be risky if the company’s earnings (due out on 5/15) disappoint, but even if that happens, this position could be protected by support HPQ might find from its 50 day moving average, which is just above $45.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in HPQ.
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