Monday morning has never failed to bring in the perfect mix of surprise and excitement that will set the tone for another week of options trading activities. We awoke to news that Hewlett-Packard (NYSE:HPQ) is splitting a 75-year old company into two separately listed companies in order to increase its competitiveness in the industry.
Hewlett-Packard with its market capitalization of $65.88B is a provider of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses (SMBs) and large enterprises, including customers in the Government, health and education sectors.
The shares of Hewlett-Packard have been rising steadily for much of this year before the stock experienced some turbulence earlier in September. However, the stock is already up some 5.88% to $37.25 and I am naturally exploring HPQ options with a view to finding new entry points or exit points to make profits off HPQ stock options.
The stock chart above shows how shares of Hewlett-Packard have traded within the last one year. You can easily see that the stock has gained an impressive 89% from its 52-week low of $20.25 to its 52-week high of $38.25. More interesting is the fact that the stock is now trading at a mere 2.68% discount to its 52-week high and there is a very high probability that it will touch that high if the current momentum continues.
It is also worthy of mention that the new bullish momentum in the stock is very strong as seen in the RSI Index. HPQ currently has an RSI index of 59.99, which suggests that the stock has not even entered overbought levels; and thus, the buying action has not neared the point of slowing down.
We should also pay attention to Hewlett-Packard’s share price in relation to its 50 and 200-day moving averages. At the current trading price of $37.25, shares of HPQ trade at a 3.2% premium to the 50-day moving average and they trade at a 14.72% premium to the 200-day moving average.
We Trade Options Not Companies
Investors can debate the merits and demerits of Hewlett-Packard’s decision to split the company from now until kingdom come. However, as traders we are not concerned about whether the development is good news for HP or not, since we trade stocks and not companies. Hence, I am only concerned about how I can make money from how the market reacts to the news; and so far so good, the market reaction to the news has been positive; hence, I will pitch my tent on the bullish side of the fence.
How to Trade HPQ Options
The historical trading pattern of shares of HP can help us make an informed decision about where the stock is likely to go from here; hence, we turn to the chart once again. Another look at the how shares of Hewlett-Packard have traded in the last one year provides interesting insight into the support and resistant levels of the stock.
You will observe that the stock has been rising to new highs in $2 increments and you can see that it obtained support at $35 after experiencing some resistance at $38. Hence, it is logical to expect the stock to breakout to $40 on the current momentum before it can possibly experience a resistance. I recommend buying the HPQ Jan 2015 40.000 call (HPQ150117C00040000) at an asking price of $0.72
— Daily Option Alerts