By Jud Pyle, CFA, chief investment strategist for the Options News NetworkOn Feb. 24, I wrote about some call-buying activity in Hewlett-Packard ( HPQ). At the time, the stock was trading for around $29. It since has slid to below $26 on March 9 before rallying to close on Friday at $28.85. The March 30 calls that were purchased for about $1.15 therefore expired out of the money. However, yesterday with the big rally in the market, HPQ shot back up to over $31. Today there was some interesting, longer-dated call-option volume to look at.
Another thing that is noteworthy about this call-option activity is that it has pushed the prices of the calls up, despite the shares being lower. That is a very practical way to understand that implied volatility is higher. For example, with the stock down 7 cents to $31.10 at roughly 1:21 p.m. EST, the January 32.5 calls were up 20 cents, from $4.30 to $4.50. That is the result of implied volatility rising from 43 to 45. Call-buying like this does not mean that investors should run out and buy shares. But it is worth noting that some option investors are making longer dated bets that the stock could rally. Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.