When you do not know which way a stock is going to trade you can sometimes lock in gains in either direction using a simple strategy.
When the market is not cooperating and stocks are directionless or headed lower there are always some low risk trades that can profit from either direction. One of those is Hewlett Packard today.
Rather than try to pick a market direction we can enter a cheap option strangle. This way we profit from a move in either direction. Normally strangles, which involve options that are not the same strike price and straddles that are the same strike price are too expensive to produce a reliable profit. The key in these strategies is to find a stock with cheap options.
NEW DIRECTIONAL CALL PLAYS
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HPQ - Hewlett Packard
Back in October Hewlett Packard spun off its enterprise server business into Hewlett Packard Enterprise (HPE) and the old Hewlett Packard that sells PCs and printers remained (HPQ). The problem with this spinoff is that the enterprise company is where the profits are. The PC business has been declining for years and that is why HP split the two entities.
Since the spinoff at $14.75 in October the HPQ shares have been in decline. They closed at a new low on Monday. I see no reason where HPQ should rally in the near future. PC sales are still expected to decline in 2016 only at a slower pace. There is nothing to produce excitement in the PC company.
In theory we could probably just buy a cheap put and sit on it but HPQ has earnings on February 24th. I expect those earnings to be disappointing. However, you never know if they will pull a rabbit out of the hat and announce something that powers the stock higher. This is why I am recommending a strangle rather than just a straight put play.
HPQ shares closed at $9.49 on Monday and halfway between the $9 put and $10 call. I am recommending the April strangle so we can benefit from the long-term trend if HPQ continues to decline. If earnings disappoint we could see HPQ at $5 by then.
Earnings are February 24th.
Buy April $9 put, currently 53 cents, no stop loss.
Buy April $10 call, currently 44 cents, no stop loss.
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