Hewlett-Packard Computes for Option Bulls

Hewlett-Packard's headquarters in Palo Alto, California.
Hewlett-Packard's headquarters in Palo Alto, California.

Hewlett-Packard has provided shareholders plenty of reason for concern, but yesterday option traders were bullish on the computer company.

Option volume exploded with more than 178,000 contracts changing hands, compared with a daily average of just 32,000. Overall calls in the name outnumbered puts by more than 3 to 1 yesterday, a reflection of the day’s bullish sentiment.

OptionMonster’s tracking systems show that calls with a $25 strike price were active in all months trading, with heavy buying in contracts that expire tomorrow, next Friday, and in May. The weeklies traded for $0.13 to $0.17, while the standard April 25 calls fetched $0.25 to $0.40. The May 25s ended the session at $0.93.

Those calls lock in $25 as the entry price for the stock, so they can deliver major leverage compared to the share price. If the stock keeps rallying they could easily double, triple, or more. But if it drops even a little, those options will end up worthless.

Hewlett-Packard shares started strong yesterday and closed at $25.10, up 7.22 percent. The stock came into the session as the weakest member of the Dow Jones Industrial Average on the year.

—Najarian owns HPQ shares.

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Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC’s “Fast Money” and co-founder of OptionMonster.com.