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Option Traders Making Large Bullish Bets On HP Following Layoff News

Wayne Duggan

HP Inc (NYSE: HPQ) tumbled 9.5% on Friday after the company announced an aggressive round of layoffs. One silver lining for HP bulls is that some large option traders appear to be betting additional downside is limited.

The Trades

On Friday, Benzinga Pro subscribers received eight option alerts related to unusually large trades of HP options. Here are a handful of the biggest:

  • At 10:41 a.m., a trader sold 602 HP put options with an $18 strike price expiring on Oct. 11 near the bid price at $1.461. The trade represented an $87,952 bullish bet.
  • Less than a minute later, likely the same trader sold another 628 of the same HP put options with an $18 strike price expiring on Oct. 11 near the bid price at $1.451 cents. The trade represented a $91,122 bullish bet.
  • At 10:51 a.m., potentially the same trader sold another 600 of the same HP put options with an $18 strike price expiring on Oct. 11 near the bid price at $1.491. The trade represented an $89,460 bullish bet.
  • At 12:09 p.m., a trader sold 7,000 HP put options with a $15 strike price expiring in Jan. 2022, at the bid price of $2.40. The two back-to-back trades represented an $1.68 million bullish bet.

Of the eight total large HP option trades on Friday morning, only one involved puts purchased at or near the ask, trades typically seen as bearish. The remaining seven trades were puts sold at or near the bid, trades typically seen as bullish. The five largest trades of the morning alone represented nearly $2 million in combined bullish bets.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size and timing of the largest HP trades, they could easily be institutional hedges.

Bottom In?

HP announced it's cutting up to 9,000 jobs by the end of fiscal 2022. The job cuts are part of HP’s aggressive cost cutting initiative after the company reported just 0.1% revenue growth last quarter.

The layoffs represent about 16% of HP’s total global workforce, and the cost cuts are expected to ultimately total $1 billion. The cost cuts will nearly exactly offset an expected $1 billion in restructuring costs HP is expected to start charging in the fourth quarter.

Shares plummeted nearly 10% on the news, but the bullish option trades suggest the bottom may be in for the stock heading forward.

Benzinga’s Take

The option market had some good news for HP bulls on a bad day, but selling puts isn’t necessarily as bullish as buying calls. Friday’s sellers may simply be taking profits on previously held bearish put positions after making a killing on the weakness in Friday’s session.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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