Options Action

Options Action Recap

So we didn't make it four for four. But one of our trades is looking pretty good.

On last Friday's Options Action, we suggested a bearish bet on Hewlett-Packard as the tech giants heads into tonight's earnings. Current prices for puts and calls imply a 5% move, which is slightly less than the company's average move of 5.5% over the last eight quarters.

Last week the stock got a nice bid after the company appointed activist investor Ralph Whitworth to the board. But despite Whitworth's great year, Dan Nathan of Riskreversal.com decided to fade the move, and bought the weekly November 27/25 put spread for $0.45, a bearish strategy that could be worth $1.55 if Hewlett trades below $25 by the end of this week.

Trade and breakdown are below:

DAN'S HEWLETT OPTIONS TRADE

  • BUY NOVEMBER 27 WEEKLY PUT @ $0.65
  • SELL NOVEMBER 25 WEEKLY PUT @ $0.20

HOW DAN'S OPTIONS TRADE MAKES MONEY

  • LOSSES ABOVE $26.55
  • PROFITS BELOW $26.55
  • PROFITS CAPPED AT $25

Our other trade involved a simpler strategy on a much more complicated story. Banking on some type of bottom in the financials, Oppenheimer's Carter Worth and Cantor's Mike Khouwsuggested buying a call on battered Citigroup stock. Specifically, they purchased the December 28-strike call for $1.00. That call is now worth $0.60, as the stock is off 5% today. To quote Fairholme Capital's Bruce Berkowitz, this one might be suffering from a case of "premature accumulation."

Trade and breakdown are below:

MIKE'S CITIGROUP OPTIONS TRADE

  • BUYING DEC 28-STRIKE CALL FOR $1.00

HOW MIKE’S CITIGROUP TRADE MAKES MONEY

  • PROFITS ABOVE $29.00
  • LOSSES BELOW $29.00

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