Options Corner: HPE Upgrade Following Stock’s 160% Y/Y Rally

infrastructure solutions and servers, networking and storage. Time now for options Corner. Joining us, takeper look at the chart is Rick Tocchet, our lead market technician here on Schwab k. All right Rick this one h had some strong performance this year. What trend should we notice on the chart. Yes good morning. Up . A reminder to HP is the commercial arm of Hewlett-Packard. This is the one that does the big servers and data infrastructure. Appc is the personal computers and th the other printers and that business here. So we can see now that the IT infrastructure field here, HPE near the top of the group here, outpaced only by Dell at this point here. But some other names IBM, Suro, computer, Cisco, etc. So if we were next to look at our candle chart here, we can see that the recent shape has been a rising wedge. We've had a trend line rather steep, rather sharp pointing upward here. Counter played by a more shallow sloping boundary line going across those highs. But recently it's looking like we have been breaking more toward the downside aftere hit these highs 6710 old highs came in here around 64 that we have watched as a notable point of potential resistance first, and now support the old resistance once it's breached, then becomes a point where you might look for lows to be established. And wh did make intraday lows well beyond that point, our clothes came in above that So interesting food for thought there 61 also a repeated floor. And then right here as well. 55 so when we forr moving averages, our five day in dark blue representing one wee exponential moving average comes in at 6330. Our 21 day representing one month is about 60 right now. So that would the next pote footholds for the bulls. If price does start to decline, RSI has beenrending this indicator, this measure of momentum looks like it is on pace. Perhaps to break above this downward sloping red line here our green uptrend is in play. We are above the 50 midlia bullish trajectory. Here our vo profile the are here that shows the most concentration of trading close to current price activity roughly between 60 to 64. Not There's more clearly definede areas here 52 to 55. And here 45 to 50ice as well many volume spikes that we'ven after earnings. So heavy trading activity coming in after we h seen these these results heo a good quarter so far for HPE. What's the approach you would take for an example trade. Rick. Right. So to look at our expected move boundaries here today we're going to lo ahead. Our green box here our November expira 49 days out plus or minus about5%. So when we think a trade here we could do a what's called a risk reversal tde. Sometimes we're going to combine selling a put and buying a call here. So plus 1st November 20th 65 str call and minus one November 20th 60 strike put at a 230 nets flat area is our debit paid. We have kind of this cushion. When we do start to get below 60 we would the assignment risk from that short put. But then we would be buying shares at ofe e credit from the short put defrays the cost of the long call here. So if we do sta to get above that break even here 6730, that's when this trade would become pble. So 2.7% to the upside i profit break. Even our 60 strike threshold 8.4% to the downside, 18.5% net expected plus or minus here. So would br our debit paid is 230. But our max loss technically would be 6230 if we got a sign and the stock o zero here. Meanwhile max profitpotentiallyd ge to the upper edge of that expected move bou it would be a decent profit here over $1,000 or so.