October 3rd Options Now Available For Hewlett Packard Enterprise (HPE)

The article details two options strategies for Hewlett Packard Enterprise (HPE) stock, offering ways to generate income or acquire shares at a discount. Selling the $18.00 strike put, 17% out-of-the-money with an implied volatility of 77%, carries an 80% probability of expiring worthless, yielding an 8.49% annualized return on cash, or allows for potential stock acquisition at an effective $17.82 cost basis. Alternatively, selling a $22.50 strike covered call on existing HPE shares, 4% out-of-the-money with an implied volatility of 56%, has a 54% chance of expiring worthless, providing a 23.10% annualized premium boost, or a 6.50% total return if shares are called away by October 3rd. These examples highlight options-based income generation and discounted acquisition opportunities for HPE.

Analysis

The provided analysis outlines two distinct options strategies for Hewlett Packard Enterprise (HPE), leveraging its current options pricing dynamics. The first strategy involves selling an out-of-the-money cash-secured put at the $18.00 strike, which is approximately 17% below the current share price of $21.68. This strategy presents a dual-purpose opportunity: either to acquire shares at an effective cost basis of $17.82, or to generate an 8.49% annualized return if the option expires worthless, an outcome with a calculated 80% probability. The second strategy is a covered call, selling the $22.50 strike call against shares purchased at $21.68. This generates immediate income and offers a potential total return of 6.50% if the stock is called away, or an annualized premium yield of 23.10% if the option expires worthless, which has a 54% probability. A key observation is the elevated implied volatility in both the put (77%) and the call (56%) contracts relative to the actual trailing twelve-month volatility of 47%, indicating that options premiums are currently rich, which inherently benefits the seller in both proposed scenarios.

Key Decisions for Investors

• For investors bullish on HPE but seeking a lower entry point, selling the $18.00 cash-secured put offers a method to either acquire the stock at a 17% discount to its current price or generate an 8.49% annualized yield on the cash collateral.
• Current HPE shareholders or those initiating a position at $21.68 could consider the covered call strategy at the $22.50 strike to generate a 23.10% annualized premium yield, but must be willing to cap their upside at a 6.50% total return if the stock is called away by expiration.
• Given that implied volatility significantly exceeds historical volatility, conditions are favorable for option sellers, however, investors must recognize this premium also signals market expectations for increased price fluctuation in HPE stock.