Call Options Or Put Options On Hewlett-Packard (HPQ)?

| October 8, 2014 | 0 Comments

Hewlett-PackardHewlett-Packard (HPQ) is the latest major company to make waves on Wall Street. The IT giant is planning to split into two different companies.

HPQ shares are currently trading at $35.41, up 28% for the year. The stock is trading just 7% below the 52-week high of $38.90 and is 78% above the 52-week low of $19.87.

Is this an opportunity to buy call options on HPQ because of opportunities from the upcoming split? Or should you buy put options on HPQ because the split won’t actually help the business? 

The bulls make a convincing argument…

HPQ hasn’t been the powerhouse it once was for quite some time. The company is trying to shake things up a bit by dividing into separate public companies.

Hewlett-Packard Enterprise will focus on corporate hardware and services, while HP Inc will take over the PC and printer business. Having these businesses as different entities should make each company more nimble and flexible.

What’s more, it opens the door for additional strategic M&A with either new company. Often times, the best way to unlock value in a company is to divide it into pieces.

But the bears have a compelling case as well… 

On the other hand, HPQ isn’t really getting any better – it’s just going to be two companies instead of one.

The PC and printer business will still be competing in a heavily commoditized space. And, the corporate business is still behind the curve versus other companies in competition.

Basically, HPQ isn’t adding value to either company. It’s simply dividing its problems into two different entities.

So is it time to be bullish on HPQ due to the upcoming split, or should you take a bearish position because the split doesn’t actually solve any real problems?

If you think the bulls are right, take a look at buying the HPQ December 36 calls for around $1.50. 

If you think the bears are right, take a look at buying the HPQ December 36 puts for around $1.75.  

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.