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Options volume on HPQ jumps as shares dive to lowest in a decade

Hewlett-Packard Company (NYSE:HPQ) – Shares in Hewlett-Packard Company (NYSE:HPQ) fell to their lowest level in a decade on Tuesday after the company announced fourth-quarter results that missed analyst expectations for sales and included an $8.8 billion impairment charge related to its Autonomy business. Options on the PC maker are seeing heavy volume amid an ugly selloff in the price of the underlying, currently trading down 11% at $11.84 as of 12:35 p.m. ET. Nearly 250,000 call and put options have changed hands on the stock versus the average daily options volume of 47,726 contracts. Calls are slightly more active than puts, with the call-to-put ratio hovering around 1.1 in early-afternoon trading. Weekly calls, specifically the Nov. 23 ’12 $12 strike contracts, attracted particularly heavy trading traffic today. It looks like some strategists are betting the stock could rebound somewhat off its post-earnings report lows by the end of the week. Upwards of 23,000 of the $12 strike weekly calls traded in the first half of the session today against open interest of just 696 contracts. It appears most of these contracts were purchased for an average premium of $0.10 apiece, and may mean some options market participants are placing cheap near-term bullish bets on the computer maker. Traders long the weekly contracts make money as long as shares in Hewlett-Packard Company (NYSE:HPQ) increase 2.2% over the current price of $11.84 to settle above the average breakeven price of $12.10 at expiration.

Hewlett-Packard Company (NYSE:HPQ)

Krispy Kreme Doughnuts (NYSE:KKD) – It’s a sweet day for investors in Krispy Kreme Doughnuts (NYSE:KKD), with shares in the name soaring 22.5% on the back of better-than-expected third-quarter earnings to the highest level in more than a year. Shares in the doughnut maker are off earlier highs, but continue to trade up approximately 20% on the session at $9.04 as of 11:50 a.m. ET. Buyers of bullish options on Krispy Kreme Doughnuts (NYSE:KKD) yesterday prior to the earnings report are enjoying sizable overnight gains in the value of their positions. December expiry call buyers snapped up around 400 of the $7.0 strike calls at an average premium of $0.74 apiece on Monday and purchased roughly 200 of the $8.0 strike calls for an average premium of $0.20 each. Buyers of the $7.0 strike calls now find premium on the contracts has almost tripled to $2.15 each, while premium on the $8.0 strike calls is up six-fold overnight to $1.20 apiece just before midday in New York. One trader looking for Krispy Kreme Doughnuts (NYSE:KKD) shares to extend gains during the next couple of months purchased 185 far-out-of-the-money calls at the Jan. $11 strike for a premium of $0.05 per contract. The trader may profit at expiration next year if shares in Krispy Kreme rally another 22% during the next couple of months to top the effective breakeven price of $11.05.

Barrick Gold Corporation (NYSE:ABX) – Shares in gold mining company, Barrick Gold Corporation (NYSE:ABX), reversed earlier losses on Tuesday to trade up 0.70% on the day at $34.53 by 12:05 p.m. ET. Barrick’s shares have declined 25% since the start of 2012, but one or more options players trading April expiry calls today may be looking for a rebound during the next five months. Roughly 9,000 call options changed hands at the April 2013 $35 strike against open interest of 868 contracts this morning, with the bulk of the volume purchased for an average premium of $2.32 per contract. The trader or traders purchasing upside calls on Barrick Gold Corporation (NYSE:ABX) stand ready to profit in the event that shares in the world’s largest metal producer jump 8% to exceed $37.32 at April expiration. Shares in Barrick Gold Corporation (NYSE:ABX) traded above $37.32 as recently as November 1st.

Caitlin Duffy

Equity Options Analyst

The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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