One investor is swinging for the fences in Hewlett-Packard, deploying a highly leveraged strategy in the once-mighty tech stock.
optionMONSTER's Heat Seeker monitoring program detected the purchase of 8,500 June 22 calls for $0.51 and the sale of an equal number of June 18 puts for $0.46. The trade dominates activity in the name so far today, accounting for half its total volume.
Owning calls locks in the price where shares can be purchased, while selling puts obligates the investor to buy the stock if it drops to a certain level. Combining long calls with short puts is similar to owning the stock but at a fraction of the price, in this case $0.05.
HPQ is up 2.23 percent to $20.42 in afternoon trading. The stock lost roughly 80 percent of its value between April 2010 and late last year, but it bounced and had doubled by late March. Shares then began drifting lower once again.
The company has been struggling with a weak computer market and heavy debt load, but the last earnings report on February beat expectations. Management hasn't yet announced the date of its second-quarter release, though last year's calendar suggests that it will occur around May 23. So today's option trader apparently expects more good news.
The combination strategy ensures that he or she will not miss a big rally in the stock price, while also programming a buy order if it drops to $18. He or she would probably be willing to purchase the shares at that level if they already like the name but risks big losses if HPQ falls significantly below $18. (See our Education section)
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