Shares of communications technology company Hewlett Packard Enterprise Company (HPE) have been trending higher over the past year. One trader is betting that trend will continue over the next two years.
That’s based on the January 2024 $10 calls. With 745 days until expiration, 1,585 contracts traded against an open interest of 102, for a 16-fold rise in volume. The buyer of the calls paid $6.30 to make the trade.
Shares last traded near $16, making the calls already $6.00 in-the-money. That means buyers are paying a small premium to control shares at $10 over the next two years.
The tech company has seen earnings rise over 1,500 percent in the past year, although revenues have been flat. With shares trading at just 7 times earnings and right at book value, however, this looks like an interesting tech play trading like a value stock with some more growth potential.
Action to take: Investors may like shares here, even after their market-beating return in 2021. The stock also yields 3 percent at current prices, although that hasn’t changed in the past year.
For traders, a deep in-the-money long-dated option with almost no premium to it is an attractive play given how expensive option premiums can be. Traders can likely nab mid-to-high double-digit gains well before the options expire in the next two years, and rising shares may also lead to higher option premiums, which offer another way for the price of the option to rise.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.