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Friday, December 9, 2022


Protective Puts Change Hands On Hewlett-Packard As Shares Hit Highest Since May


Today’s tickers: HPQ, EBAY & PMTI

HPQ – Hewlett-Packard Co. – An upgrade to ‘Overweight’ from ‘Equal Weight’ with a price target of $27.00 at Morgan Stanley this morning is helping shares in Hewlett-Packard rise to the highest level since May of 2012. Shares in HPQ, up roughly 100% since touching down at a multi-year low of $11.35 in November, rallied 2.5% on Monday morning to trade at $22.72 as of 11:30 a.m. ET. Perhaps seeking to lock in HPQ’s strong gains during the past five months, some options traders appear to be snapping up protective puts on the stock. Notable volume in the May $23 strike put options changed hands during the first half of the trading day, with volume topping 5,400 contracts versus previously existing open interest of 297 lots. It looks like most of these in-the-money contracts were purchased in the early going at an average premium of $1.28 apiece. Profits, or downside protection, on the strategy kick in if shares in Hewlett-Packard drop 4.4% from the current price of $22.72 to breach the average breakeven point on the downside at $21.72 by May expiration.

EBAY – eBay, Inc. – Bullish options looking for shares in the online marketplace operator and payment services provider to reverse recent losses are active today. The stock is down 1.0% on the day at $49.90 as of 11:50 a.m. in New York, on the heels of a more than 12% pullback in the price of the underlying from the stock’s 52-week high of $57.27 set back in February. Trading traffic in weekly calls on eBay suggests some traders are preparing for shares in the name to rebound this week, with upwards of 2,600 lots in play at the Mar. 22 ’13 $52.5 strike versus open interest of 1,122 contracts. It looks like most of the call options were purchased earlier in the session at an average premium of $0.08 each. Call buyers may profit at expiration this week in the event that EBAY shares rally 5.4% over the current price of $49.90 to top the average breakeven point at $52.58. Upside calls are also active at the April $52.5 and $55 strikes, with upwards of 3,000 contracts trading at each against sizable open interest levels by midday on the East Coast.

PMTI – Palomar Medical Technologies, Inc. – Two weeks ago we noted heavy trading traffic in upside call options on Palomar Medical Technologies. Specifically, traders were purchasing the April $12.5 strike calls for an average premium of $0.85 each, with shares at that time trading up at fresh 52-week highs on the back of a more than 60% rally since mid-November of 2012. The value of these bullish positions established back on Monday, March 4th, have increased today on news laser maker, Cynosure Inc., is acquiring Palomar for $294 million in cash and stock. Shares in Burlington, Massachusetts-based Palomar increased more than 6% on Monday morning to $13.42. Traders long the April $12.5 strike calls today find the value of their contracts have increased to $1.00 each as of the time of this writing.


Caitlin Duffy
Equity Options Analyst

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