Early Option Tip to buy Hewlett-Packard Call Options before Earnings
HPQ is off its lows and trending higher!
As an options trader, it is prudent to use technical as well as fundamental analysis when looking for potential trades. Here is one such example that looks pretty bullish using both methods.
Investor expectations change with time, and they often do so abruptly. The development of resistance levels is probably the most noticeable and reoccurring event on price charts. The breaking through resistance levels can be triggered by fundamental changes that are above or below investor's expectations.
Description of Hewlett-Packard Co.
Hewlett-Packard Company (NASDAQ: HPQ) is a global provider of products, technologies, software, solutions & services to individual consumers, small- and medium-sized businesses and large enterprises, including customers in the government, health and education sectors.
The Company's products include laser and inkjet printers, scanners, copiers and faxes, personal computers, workstations, storage solutions, and other computing and printing systems.
The Reasoning for the Option Tip
There has been a lot of uncertainty with Hewlett-Packard Co. lately. The company has had well-publicized management problems, and it just can’t seem to decide which direction the computer giant should focus on.
In the past 52 weeks, Hewlett-Packard share prices have been bracketed by a low of $21.50 and a high of $49.39 and are now at $25.02, 16% above that low price. In the last five trading sessions, the 50-day moving average (MA) has fallen 3.2% while the 200-day MA has slid 1.1%.
Based on the pivot points, the current support and resistance levels for HPQ are $23.83 and $26.31 respectively.
That being said, many analysts agree that the company is still very profitable and undervalued. HPQ still sells the most personal computers of anyone.
According to reports Monday, PC vendors, which include Hewlett-Packard, are planning to launch new Windows 8-based PCs in the third-quarter of 2012. This adds more weight to HPQ stock price strengthening and also helps clarify the option tip at this time.
Technically, the stock has come off its recent lows at about $22 and has been trending up. The stock recently had a nice little pullback and, on Friday, the stock started to move up again. If the stock can get over a resistance area at about $26.30, HPQ might be able to fill the gap it left in August.
A nice target for HPQ would be around $30. If the stock drops below $24, a support area, consider exiting the long position.
The Option Tip
Buy the Hewlett-Packard Company (HPQ) Nov 26 Calls for $1.50 or less.
The strategy behind the Option Tip
The long call strategy is relatively easy to understand. The trade profits when the stock rises and the call premium increases as the option moves toward being in-the-money (for a long call, that means the strike price is below the market price of the shares) and beyond.
Your maximum profit is unlimited because HPQ can continue to rise. The maximum loss is $1.50 — what you paid to enter the trade — if HPQ finishes below $26 at November expiration, which is one trading day before the company releases earnings, so you’ll be out of the trade before the news hits the tape.