HPQ reports earnings on Wednesday. Recently the stock has been climbing back after a string of disappointments. As discussed in this article CCI's thesis on this stock has been that it will be range bound for awhile until it is clearer to the market that some of the past noise around the company is behind them. Based on this thesis CCI has been selling calls against the stock owned in the high $20s.
With the stock trading at $29.5, CCI continues to believe that it might be near a short-term top. More specifically HPQ announce earnings this week. Obviously, I don't know what earnings will be. If they had a bad quarter they stock will very likely pull back. If the earnings are good, I don't think the new CEO will spin that as "all is well". She is still new to the job and my impressions is she is well seasoned at managing market expectations. I think she would expect more twists and turns in the future for HPQ an talk cautiously about future expectations. That might limit any enthusiasm from good earnings.
CCI sold the Feb weekly $30-$31 call spread for $.32/contract today. According to mathematical option theory there is about a 35% chance of the stock trading above the break even of $30.32 at break even. Given my beliefs above I think the odds are substantially lower than that that the stock will make it that high. So this is short-term, defined risk, speculative way of putting my money behind my beliefs. If the stock stays below $30, we will make the max profit of $.32/contract.
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