Hewlett-Packard Puts Popular; Analysts Expect Profit to Drop 15%From Last Year

Joseph Hargett
Hewlett-Packard Puts Popular; Analysts Expect Profit to Drop 15%From Last Year
Daily HPQ chart with 20-day and 50-day moving averages

Options activity is brisk on Hewlett-Packard Co. (HPQ) today, as traders position themselves ahead of tonight's fourth-quarter earnings report. Wall Street is expecting the Dow Jones Industrial Average component to post lower profit, with earnings falling 15% to $1.13 per share from $1.33 per share in the same quarter last year. Revenue is expected to decline roughly 3.7% to $32.05 billion from $33.3 billion last year.

The whisper number is a bit higher than the consensus estimate, arriving at $1.14 per share for the quarter. Historically, HPQ has bested Wall Street's expectations in each of the prior four reporting periods by an average of roughly 4.5%.

Turning toward the options pits, more than 33,430 puts have changed hands on HPQ so far today, compared to volume of 27,802 call contracts. As a result, the single-session put/call volume ratio arrives at a bearishly skewed 1.20, with put volume outpacing call volume heading into the latter half of the day.

Taking a closer look at today's activity, we find that the out-of-the-money weekly November 25 put is the most popular strike on the day, with volume topping more than 6,100 contracts. The next most popular strike is the just out-of-the-money weekly November 27 call, where nearly 5,200 contracts had changed hands at last check. Keep in mind that these contracts expire at the end of this week, making them highly speculative.

Outside the options pits, HPQ is seeing some rather bullish block trading activity. More than 55 large blocks have traded so far on the session, with roughly 2.5 million shares bought versus about 2.4 million shares sold. The result is a single-session bought/sold ratio of about 1.3, with HPQ seeing a net inflow of cash to the tune of nearly $1.8 billion.

Technically, the shares are being hammered by the broad-market selloff. HPQ was last seen trading roughly 3.5% lower, with the shares struggling to hold support at their 20-day moving average. This trendline has buoyed the security since October 5. Additional support lies at the $26 level, which was home to prior resistance in late August and early October. Should worse come to worst, HPQ can fall back to its rising 50-day moving average in the $25.24 area – this could mark a buying opportunity.

There is a concern for overhead technical resistance in the $29-$30 region, which is home to the stock's gap lower on August 19. That said, HPQ has filled in that gap, and has only to breakout above resistance at the $29-$30 area to extend its current uptrend.