Dell Options Higher on HPQ News

Dell (DELL) shares jumped higher Tuesday after positive news was announced by competitor Hewlett-Packard (HPQ). The technology bellwether shrugged off concerns about a potential economic slowdown and issued guidance that surpassed Wall Street estimates and sent shares 5.7 percent higher on the day. Dell shares also rallied on hopes that it would see similar increases despite an anticipated drop in corporate technology spending.

Dell and Hewlett-Packard also both saw heavy call option volume Tuesday after the news hit the market. Dell doubled its average daily volume with 21,833 contracts traded while Hewlett-Packard tripled its volume with 54,723 contracts changing hands. The October and November calls were the most popular, given the fact that Hewlett-Packard’s forecast was for the upcoming quarter. However, LEAPS and long-term options were also popular trades on the day.

Goldman Sachs may also be partially responsible for the jump in options activity. The investment firm noted that implied volatility in the technology sector remains near 3-year lows, which means that many technology options may be “on sale” if a catalyst hit the market. Goldman Sachs believes that this catalyst is the upcoming decline in corporate technology spending, which may cause a rift in the technology sector and spark greater volatility.

Technology leaders like Hewlett-Packard are expected to benefit from this tightening spending as more businesses choose the providers with greater pricing power. Meanwhile, second-rate companies could suffer with less discretionary corporate technology spending to pad their coffers. The results may be an increased implied volatility premium, which will increase the option’s premium. Holders of these options will therefore see higher prices.

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