Hewlett-Packard Company (HPQ) provides computer hardware and software products for individuals and small to medium sized businesses, in addition to offering a wide variety of enterprise services such as hosting, storage and networking solutions to its larger commercial end users. As of the time of this post (9:35AM CST), HPQ is currently trading up modestly on the day to 37.90, a gain of 1.07%. The stock is trading in the upper end of its 52 week range of 25.09-38.25, as it has recovered well from a pullback in mid-October following news that the company plans to split into two separate companies that could better focus on their respective business concentrations by the end of the fiscal year 2015. Hewlett-Packard will be split into Hewlett-Packard Enterprise to focus on its storage, networking and other enterprise services, and HP Inc. which will remain focused on computing hardware and software and the company’s foray into 3D printing. HPQ is set to report earnings today, 11/15/2014, after the market close.
HPQ has traded with evenly mixed results following the last eight quarters of earnings, posting four higher sessions and four lower sessions immediately following the EPS release. While the directional reactions have been largely mixed, HPQ has shown some degree of consistency in terms of its volatility following earnings, posting an average historical move of around 9.8% during this time period. Currently the options market seems to be under pricing the anticipated move in HPQ at just 3.73%, representing a $1.42 move in the underlying stock based on the current pricing of the ATM straddle. As HPQ has rebounded well following the digestion of the announced split and the stock remains well above the cloud, relevant moving averages and continues to press its 52 week highs, I will be looking to get long this name into earnings this afternoon.
Trade: Buying the HPQ Nov 28th Weekly 38.5-39.5 Call Spreads for $0.28
Risk: $28 per 1 lot
Reward: $72 per 1 lot
Breakeven: $38.73
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