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.
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