Volatility to Increase in Hewlett-Packard?

Goldman Sachs’ options analysts think so; in fact, they issued a trade report this morning suggesting that investors purchase straddles on Hewlett-Packard (NASDAQ: HPQ) in May to capture what they think to be higher than normal volatility around earnings and a potential move higher in the name. They stated that the likelihood of time decay over the next few weeks is buffered by the fact that so many other related names are reporting earnings prior to HPQ, such as Intel (NASDAQ: INTC). The $52.50 straddle your best bet.

Hewlett-Packard also announced plans yesterday to acquire Palm (NASDAQ: PALM) for nearly $1.2 billion, at $5.70 per share. Palm shares are trading higher than that bid price, currently reflecting belief that another player may step up to bid for the company. This action will play out in dramatic fashion and will also increase HPQ’s volatility, supporting the prior thesis.