Implied volatility in Hewlett Packard (HPQ) options is elevated after DELL’s earnings disappointment and heading into H-P’s earnings, due out after the closing bell. The stock is down 82 cents to $20.95 in brisk trading of 37 million shares. Options volume is running 6X the daily average, with 117,00 calls and 100,000 puts traded on the computer-maker. The top trade is a 19 – 21 put spread in the Weeklys for 75 cents, 5000X, and might have been opened to hedge the earnings event risk. Jun 20 puts and 22 calls are the most actives and 30-day at-the-money implied volatility in the options on the stock is up 23 percent to 50. The stock has recorded losses after each of the previous four quarterly earnings releases, for an average daily decline of 9.2 percent. The Weekly 21 straddle currently trades at 8 percent of spot, but the volatility skew hints at a larger move: One sigma post-earnings trading range is between $18.60 and $23.70.
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Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.