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A trade idea in Hewlett Packard

|Includes: HP Inc. (HPQ)

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.
 



Disclosure: None