Wednesday, September 21, 2011

HPQ - the noise continues

Today's HP "rumor" was that they might change CEOs......again.   Who knows if this "rumor" is just another leak from the apparently dysfunctional HP board, someone creating market volatility in the stock price or  something else.  In any event,  the stock jumped about 13% to $25 on the rumor and option volatility also spiked. CCI used the opportunity to close the Oct $26 calls in the portfolio.  Readers will remember that this was one leg of a $26-$28, 1 by 2, call spread.   That combined position was entered at essentially no cost and exited with a modest gain that could be touted as something like a 500% return.  However, more practically,  the profits on this trade really just reduce the loss in HPQ shares by about 1%.   Not that glamorous. Conversely, longer term investors just sitting on the shares for the last few weeks have done nothing but loose a few more percent.   Every little bit helps when trying to minimize losses.

Bigger picture, CCI still thinks there will be lots more noise to come around HPQ, and it  will be a long time before HPQ gets back towards $30.  I continue to look for ways to exit the position in the high $20s.  The stock pulled back into the close, but if it resumes its rally on this rumor, CCI will be looking to either re-establish option positions as a mechanism to exit the position. Possible trades could be the same $26 - $28 call spread and/or just selling $27 calls

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