Options Activity Alert: HPQ, NWSA, RRC

HPQ – Hewlett-Packard Co. – Bullish trading in Hewlett-Packard options this morning suggests some traders are positioning for a rebound in battered shares of the tech giant. The stock snapped a four-day losing streak on Tuesday, rallying 2.1% to $21.50 by midday in New York, following the better-than-expected ISM non-manufacturing index report this morning. Shares in HPQ have lost nearly 30.0% of their value since mid-February. Traders picking up in-the-money calls in the July expiry are prepared to benefit should shares in Hewlett continue to recover during the next six weeks. More than 11,500 calls have changed hands at the July $21 strike against open interest of 3,028 positions. It looks like most of the contracts were purchased for an average premium of $1.36 apiece, thus positioning buyers to profit at expiration should HPQ’s shares rally another 4.0% to surpass the average breakeven point at $22.36.

NWSA – News Corp. – A sizable trade in News Corp. call options today appears to be a bet against any significant rally in shares of the international media company during the next eight trading sessions. The stock is currently flat on the day at $18.59 as of 12:15 p.m. ET. News Corp. popped up on our ‘hot by options volume’ market scanner this morning after some 8,295 June $19 strike calls were sold at a premium of $0.20 apiece. The strategy results in maximum possible profits of $0.20 per contract should the options expire worthless next week. Naked short calls leave the seller vulnerable to unlimited losses to the upside in the event of a rally in the price of the underlying above the effective breakeven price of $19.20, however, it’s possible the strategist is long the stock and selling covered rather than uncovered calls against the position. Shares in News Corp. have declined 10.2% in the past four weeks, but need only rally 3.3% over the current price of $18.59 to surpass the $19.20 breakeven point by June expiration.

RRC – Range Resources, Inc. – What appears to be an iron condor initiated on independent natural gas exploration and development company, Range Resources, Inc., today looks for the price of the underlying shares to settle between $57.50 and $65.00 at December expiration. Shares in Range Resources are up 1.05% on the day at $55.21 in early-afternoon trading. The combination of a 355-lot Dec. $65/$70 credit call spread and a 355-lot Dec. $52.5/$57.5 credit put spread results in total premium received of $3.75 per contract. The strategist responsible for the iron condor keeps the full $3.75 net credit, the maximum possible payout available on the position, should shares in Range Resources trade within the $57.50 to $65.00 range when the final full trading week of 2012 draws to a close in December. RRC shares have closed within the $57.50 to $65.00 price range on approximately 70.0% of the 106 trading days elapsed in 2012 so far. Maximum potential losses of $1.25 per contract result if shares settle below the lower breakeven price of $52.50 or above the upper breakeven point at $70.00 at December expiration.

About Caitlin Duffy 373 Articles

Affiliation: Interactive Brokers

Caitlin Duffy joined Interactive Brokers in 2009. In her role as Equity Options Analyst, Caitlin provides daily market commentary; highlighting various options trades, trading patterns and strategies of interest. Through Interactive Broker's webinar program, Ms. Duffy presents a number of educational, options-related events describing the theoretical pricing of options, the option Greeks as well as options strategies.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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