Thursday, April 12, 2012

Trade: Sold HPQ May 27/29 Credit Call Spread

Ended up taking the trade after the stock cooled off a little.  Right now it's at 24.85 and I got 5 spreads filled for $0.13.   Would eventually like to make this an iron condor like I mentioned below, but not going to be in a hurry to do so.  Going to let the chart tell me what to do on this one.  OptionsHouse says I have an 84% chance of achieving max profit.  Current strike peg is at 25-26.

Sold HPQ May 12 27/29 call spreads for ($0.19-$0.06) x 100 x 5 spreads = $65 premium received

Original Post
Here is a trade I'm considering.  Hewlett-Packard (HPQ) sold off massively after it missed earnings late February.  Today it's broken out of the recent downward trend.  I'm looking at selling the May 12 27/29 call spread.  Generally I avoid call spreads but after seeing the price action in this one the past two months I'm pretty bearish in it.

Short strike of 27 means the stock would have to increase almost 8% to be unprofitable.  Not unheard of, but there is some overhead resistance at 25.  Not to mention it would also have to blow through the 50- & 200-day sma's.  It's also trading in very overbought territory right now with the Williams %R at 0.00 and a piercing of the upper Bollinger band.

That last point means we could also see a downward bounce as early as tomorrow (as frequently happens when a stock trades outside its Bollinger) and I could close the trade early or sell put spreads to make it an iron condor.

Right now the 27/29 call spread is trading at ~$0.15 per spread.

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