Is HPQ Toast?
The market spent most of the day trying to decide if the ADP payroll report was going to be a good or bad precursor for the NFP number on Friday. I could almost see the tug-of-war going on between the yes and no camps all day long. One stock where the future was not in doubt was Hewlett Packard (HPQ ). The market hated it, and the name was down 13+%.
The story seems like Meg Whitman wants to bring some sanity to place and fix the results of the CEO revolving door that has beset the company since Mark Hurd left two years ago (stock was in the $40s then). Now it is a $14.90 number and earnings of just north of $2.00 per share (7X earnings of the new lower expectations). Even on the dour forecast, HP is not a real expensive company, but fund managers are looking at DELL and wondering if that can happen to HPQ.
The IV did make a nice pop today, and there looks like a small window to play a time spread in here. October is not in the earnings cycle, so any jump in implied volatility will be short lived. November is in the earnings cycle, but it feels like Meg tried to get the bad news out of the way today.
Image from LiveVol Pro
A straight time spread would be too tough on the delta, so I think a diagonal play would work better and still give a shot to have a financed position into the regular earnings report.
The Trade
Selling some of the October juice is the goal here, but I want to protect the contracts with a November position. The trade that works for me is selling the October 15 put and buying the November 14 put for a nice credit. If HP can still move lower, this trade will work, and if HP catches a bid, you own the Nov put for a credit.
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