Monday, November 24, 2008

Establish Hewlett Packard Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Hewlett Packard (HPQ).

Hewlett Packard is performing exceedingly well in all divisions, but especially in personal computers, printers, and enterprise storage/servers. And with the recent acquisition of EDS completed, the services division is now set to give IBM a run for its money in that arena. Software is now the only division that could use a revenue boost, but a significant acquisition in that area will likely have to wait a year or more until the complete and successful EDS integration is assured. HPs CEO, Mark Hurd, is a terrific leader, yet the company surprisingly trades at a historically low P/E of 10.8; and likewise a historically low P/Sales of 0.8. Moreover, HP was one of the few technology companies to beat its recently reported 3rd quarter revenue and earnings per share estimates and to maintain its previously stated full year guidance estimates for 2008. Although future revenue growth will likely be limited to 'high single digits', this quality company seems to be a worthwhile purchase in its current $35 price range.

Established Hewlett Packard (HPQ) Covered Calls for Dec08:
11/24/08 Bought 500 HPQ @ $35.18
11/24/08 Sold 5 HPG Dec08 $35.00 Calls @ $2.55

Annualized Return If Exercised (ARIE): +94.5%
Downside Breakeven Protection: 7.2%

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