Options action in
Hewlett-Packard Co. (NYSE: HPQ )
during Thursday's session suggests at least one investor could have
closed a block of long calls after purchasing them less than three
weeks ago.
Shares of the computer company have dropped 50 cents, or roughly
1%, to $52.78 so far on the day. The drop is likely due to the fact
that HPQ on Wednesday announced plans to acquire
Palm (NASDAQ: PALM )
for $1.2 billion, or $5.70 per share, in cash. Since that
announcement, analysis firm Kaufman said it likes the deal and
Caris said it is skeptical of the deal. HPQ is due to announce
earnings figures on May 18 after the market closes, and analysts
polled at Thomson Reuters expect earnings of $1.05 per share.
More than 72,000 November 70 calls changed hands so far today.
The bulk of the volume traded around 10:40 EST for a premium of 24
cents per contract. These calls are home to current open interest
of more than 74,000 contracts, indicating it's most likely that
investors sold to close long call positions. If you recall, I
covered a call buyer in the November 70 calls on April 9 in my
article called, " Betting on later-term upside in Hewlett-Packard (
HPQ
) ," and today's action could be those same investors selling back
these calls. A couple weeks ago, these investors paid 25 cents per
contract for these November 70 calls, when the stock was around
$53.80 per share. The fact that the options have only dropped about
one cent with the stock down $1 is a sign of increased implied
volatility. These options had a delta of closer to five, meaning
that with the stock lower than it was on April 9, these options
should have declined more than one cent. So, on the options action
alone, this long call trade from April 9 lost $70,000. But if the
option holder was short stock delta neutral against these calls,
they could have made $350,000 as the shares declined $1. We don't
know for certain if the long call holder was short stock against
the calls, but we do know that the implied volatility to exit these
calls was higher today, than it was when they were purchased almost
three weeks ago.