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New York
Wednesday, February 21, 2024

HP bulls charge at a $50 upside target

Today’s tickers: HPQ, VAR, DOW, AMTD, XLF, WFC & BAC

HPQ Hewlett-Packard Company – The global technology company has enjoyed a more than 4% rally to $34.41 on broader market gains. HPQ edged onto our ‘most active by options volume’ market scanner after bullish option traders played the field. Optimism in options-land occurred amid news that HPQ was assigned an “overweight” rating by an analyst at Atlantic Equities LLP as well as a heightened target price of $44.00 per share. The first sign of optimism we noticed was the sale of 2,200 puts at the May 32.5 strike price for a premium of 1.00 apiece. But, the May transaction was merely small potatoes compared to what we observed in the January 2010 contract. At the January 35 strike, an appetizer of 4,500 calls was bought for 5.30 apiece ahead of the main course, a large bull call spread. The January 40 strike price saw the purchase of 20,000 call options for a premium of 3.10 each and spread against the sale of 20,000 calls at the January 50 strike for a premium of 87 cents. The net cost of the spread amounts to 2.23 and yields a maximum potential profit of 7.77 to the trader if shares can shoot up to $50.00 by expiration next year. HPQ’s shares have not traded above $50.00 since December 31, 2007. In order for this investor to breakeven at $42.23 where he would begin to amass profits on the spread, shares would need to rally by 23% from the current price.

VAR Varian Medical Systems, Inc. – The designer and manufacturer of advanced equipment and software utilized for the treatment of cancer has experienced a 6% rally to $33.28 amid supposed takeover chatter reported by some news sources today. Option volume of nearly 21,000 contracts has superseded existing open interest on the stock of just 19,785, indicating that there is certainly fresh interest a-brewing. Investors were seen picking up more than 4,600 call options at the April 35 strike price for an average premium of 47 cents apiece. Meanwhile, traders looked as high up as the May 40 strike price where some 2,600 call options were scooped up for about 68 cents per contract. Option implied volatility which started the day at around 49% has since gone through the roof and current stands at 65% for the day.

DOW The Dow Chemical Company – Shares of the global chemical company have joined the sea of green as its shares have rallied by more than 7.5% to stand at $10.92. DOW grabbed our attention after a few traders were observed making some bold bullish moves. One investor who had purchased 10,000 puts at the June 7.5 strike price for 43 cents back on April 3rd, threw in the towel on downside protection and was seen selling the put options for just 35 cents today. Furthermore, it looks like he then turned his frown upside down by picking up 10,000 calls at the May 12.5 strike price for 40 cents apiece. The investor lost 8 cents on the sale of the puts and then paid out 40 cents to go bullish on DOW. The net cost of 48 cents yields an effective breakeven share price of $12.98. To begin to amass profits starting at the breakeven point, shares would need to rally by another 19% from the current price. Fellow bulls looked to the April 12.5 strike where about 4,000 calls were purchased for 10 cents each. Also targeted was the May 11 strike price where more than 8,400 calls were coveted for an average premium of 96 cents.

AMTD TD Ameritrade Holding Corporation – The financial services firm has seen its share rise by more than 5% to $14.95 and option traders are positioning themselves today for a continued rally. The April 15 strike price attracted fresh buying interest as 3,400 calls were purchased for an average premium of 63 cents per option contract. Investors took an even more bullish stance at the May 17.5 strike price, picking up 2,400 calls for an average price of 48 cents apiece. Option volume has currently surpassed 13,300 contracts for the day and represents 36% of existing open interest on the stock. One news source has revealed unconfirmed takeover rumors surrounding TD Ameritrade. The source added that perhaps Toronto Dominion, which already holds 45% of AMTD, may be interested. Option implied volatility jumped this morning to 72% but has since dropped off slightly to the current value of 69%.

XLF Financial Select Sector SPDR – Shares of the financials ETF have rallied by 8% to $9.95 perhaps because the market has welcomed a flood of good news including Wells Fargo & Co.’s record first quarter profit forecast. Option traders scrambled to embrace the positivity and were seen initiating bullish plays. One investor established a calendar spread by selling 13,600 calls at the April 9.0 strike price for about 1.08 apiece spread against the purchase of 13,600 calls at the May 10 strike price for 94 cents per contract. He banked gains on today’s share price rally and took in a credit of 14 cents on the trade, while also reestablishing his position at a more optimistic strike price in the May contract. Elsewhere, another investor was observed selling puts in order to buy calls. At the May 10 strike price 20,000 puts were shed for a premium of 94 cents apiece while 20,000 calls were picked up for 92 cents apiece at the same strike. A credit of two cents is enjoyed by the investor for getting bullish on the XLF. The April 11.0 strike price was also populated by optimists who purchased over 15,000 calls for an average premium of 10 cents apiece. Shares would need to continue to rise by another 11% to the breakeven point at $11.10 in order for profits to amass for traders long of calls at the April 11 strike.

WFC Wells Fargo & Co. – Igniting the blue touch paper and setting off the firework parade on Wall Street today is the performance of Wells Fargo, whose 55 cents earnings overshadows the 24 cent forecast. The 20% share price add to $17.80 is the cause of a slide in its perceived risk measure where options implied volatility has declined from 133% to 114% this morning. Still high for a bank that’s apparently out of the woods we can’t help but think. We’re not quite sure what the driving force behind today’s options activity is but rather than dwell on the obvious frenzy in the April and May contract, we were drawn to activity at the July 6.0 strike puts where 17,500 lots crossed the tape at a 30 cent premium. Of course this could be a closing sale by a frustrated bear, we can’t tell since the bargain was struck at a mid-market price. However, we did see 3,000 put options bought at the October 8.0 strike where an investor paid 1.0 for the protection. For such a need to come good, shares would need to breach the $7.80 52-week low.

BAC Bank of America Corporation – A member of the tarp-gang, BAC has seen its shares surge by 18% to $8.35 as banking stocks enjoy a rally on the heels of Wells Fargo & Co. Option investors traded call options more heavily than puts today amid the market optimism, and were seen banking gains as well as getting bullish. Traders sold 13,000 calls at the April 7.0 strike price for a premium of 1.42 apiece while the April 8.0 strike price witnessed 30,300 calls sold for 62 cents each. The April 9.0 strike attracted bullish call buyers as more than 15,500 were purchased for an average of 27 cents per contract. Finally, the April 10 strike reeled in optimistic traders who purchased more than 11,000 calls for about 10 cents each. The May contract upped the ante for those seeking upside gains as the May 12.5 strike price had more than 12,100 calls bought for about 23 cents per contract. Shares would need to add to today’s rally by gaining another 52% from the current price to reach the breakeven point at $12.73 by expiration. Option implied volatility fell dramatically from yesterday’s value of 143% to the current reading of 123%.


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