Have been pondering an interesting trade idea in Hewlett Packard (NYSE:HPQ). Going in assumption is that one is comfortable holding HPQ at the current levels (impliying a bullish stance). With the stock down ~25% from its highs of the year, there is a lot of upside potential to HPQ and in my opinion, it has been unfairly beaten down by the whole Mark Hurd situation.
So here is the idea:
In the Jan 2012 options chain:
Sell (1) $40 put for $5.25
Buy (1) $40 call for $6.40
Sell (1) $55 call for $1.47
Net credit pre commission $0.32
Essentially, one has a synthetic covered call but has done it for a small net credit versus the $40.00 they would need to spend to do this outright.
One could limit the downside/margin by buying a put around the $25/30 level for somewhere between $1 and $2 if they are uncomfotable with the open ended short put.
There is risk in the idea on the downside but again, the assumption is a bullish leaning and a desire to be exposed to HPQ at the current levels.