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Hewlett-Packard Co. (NYSE: HPQ) are down today after the company announced plans to purchase Atos Origin Middle East, or AOME, a Bahrain-based systems integrator. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on HPQ.The stock has been climbing steadily over the past several months, hitting a 52-week high of $53.00 last week. This morning, HPQ opened at $50.83. So far today the stock has hit a low of $50.25 and a high of $51.00. As of 11:25, HPQ is trading at $50.80, down $0.60 (-1.2%). The chart for HPQ looks bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $55 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 a 4.2% return in 4 weeks as long as HPQ is below $55 at November expiration. HP would have to rise by more than 8% before we would start to lose money. Learn more about this type of trade here.
HPQ has never been above $55 since the heady years of the tech bubble and has shown some resistance around $53 recently. This trade could be risky if the economic news turns positive in the next few weeks, but even if that happens, this position could be protected by the fact that its earnings are not scheduled until November 19, which is after November expiration.
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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Reader Comments (Page 1 of 1)
10-22-2007 @ 2:39PM
former atos employee said...
down here in bahrain, the acquisition spells "sweet" for us in many aspects :) key markets to watch for HP in the mideast are the UAE and Saudi while industries to get jiggy with it are green-field data center managed services solutions and oil & gas erp deployments ;-)