Dow Jones 10806.21 +56.60 9:44 am PST, February 11, 2005  NASDAQ 2074.50 +21.40 For info, visit access.smallcapnetwork.com S & P 500 1207.37 +10.36 Change your subscription status here Russell 2000 630.97 +4.16 VOLUME 05: ISSUE 11  Feature: HP - The Goodbye Carly Trade. More ink has been spilled on Carly Fiorina's ouster from behemoth Hewlett Packard (NYSE: HPQ) than just about any story I've ever seen. Most lament that she's a woman (like that matters)or that she was wrong for the job or she had vision but couldn't execute, yadda, yadda. A scant few years after she took the helm the company's share price has seen virtually no daylight until after she was turfed. The richest camper after all this was, no surprise, Fiorina. $21 million plus--and counting--paid to disappear and I'll bet, despite any protestations, she could likely care less; even if she got hit in the butt by the door on the way out.  Love her or dislike her, Ms. Fiorina was predictably gracious in defeat, but who wouldn't be for that kind of dosh? I could go on and on about big-talking CEO's and executives--don't care what gender they are--who mess up companies, disappoint shareholders and then receive unbelievably obscene rewards when they get voted off the island. HP must soldier on and hopefully more important business stories will surface--and soon. Just about anything would be more interesting and substantive than the thousands of HP/Compaq/Fiorina 'analyses' of why, what went wrong, what next etc. That said CBSMarketwatch has one of the better analyses I've seen. When you finish here, scoot on over to this article at Marketwatch.com and have a read. Following the Fiorina news, HP shares actually popped about 10 percent. (That would be the door in the butt, I guess). Since then the price has settled down and our feeling is that chasing the stock at this point is very risky. From a technical perspective, the shares are banging up against strong long-term resistance. If we don't sound really positive, we're not. However, for those who want to make a contrary play--and you may be right--read on for some risk-mitigating strategies. What now? HP is a bag of hammers. The chart looks horrible and no one has any idea what will happen next. But that's the key--at least for contrarians. Something will happen. And hopefully fast. If HP returns to its roots and restructures, sells some assets off and shakes up the lethargic management, there's a shot. Rumors are swirling that Dell (NYSE: DELL) might buy some or all. HP might get out of the PC box biz and focus on printers and services. There's little doubt that we've heard the last of all this. HP management needs to get in front of the problem, hire a great CEO and provide a firm plan and execution timetable before the remainder of its long-suffering shareholders break ranks and look for greener pastures.  Under Fiorina, HP went from an innovative company that at one time inspired the likes of Steve Jobs to bring that same vibrant culture to Apple. Now, the legacy is that the majority of HP's revenues are apparently derived from selling ink cartridges. As I said, there's a lot of work to do. The next set of quarterlies is slated for February 16th and more important than hitting or exceeding the consensus numbers is management's discussion of, very simply, what happens next. The market needs precise visibility. The past few years need to be acknowledged, then discarded. Maintaining the status quo or any executive-speak dithering will likely be met with a punishing response. Not that HP is a bad company fundamentally; it now needs to focus itself so it can regain the innovative position it had pre-Carly with an eye to the changed technology landscape in which it now finds itself. Under the HP... I suspect that there will lots of projected earnings and revenue revisions beginning almost immediately. So to make an investment decision based on those is likely foolhardy, at least for the moment. One would hope that a new corporate direction has been formulated since the HP board has apparently been jaw-boning about both Fiorina's competence and the company's direction for weeks if not months. Optimists would conclude that Fiorina's ouster was the first step. We hope. For contrarians, there is the specter that the situation may fall into the 'always darkest before the dawn' category. For those who think that, therein lies opportunity. Following are a couple of thoughts to cover or mitigate your risk. And there is risk. Look at the HP options. Expirations go out to January 2007 and since apparently no one believes that HP is going up anytime soon, the premiums are pretty reasonable. Remember Apple (NASDAQ: AAPL) a few years ago? You couldn't give the shares away. The board got rid of that toxic management and brought in Steve Jobs. You get the point. The strategy has two parts: one for those who just want to play a recovery and those who want to or currently do own HP shares. And of course there are puts for those pessimists who want a limited risk way to short the whole mess. Put in a Call. Let's go a year out. January 2006. That entire option table is here: http://finance.yahoo.com/q/op?s=HPQ&m=2006-01.   You can access other expiration cycles at the top of the page. Currently HP is trading at around $21.25. The January 2006 call options with a strike price of $20 and $22.50 are trading at around $2.80 and $1.60 respectively. Since the strike price of the $20 call is below the market price, the $2.80 price represents $1.25 in intrinsic value (market price minus the strike price) and the remaining $1.55 of the $2.80 is time value. Since the $22.50 strike price is above the market price, that premium is all time value. (Prices may change slightly by the time you read this, but the respective sums will be close). Simply, if you buy the $20 call at $2.80 or the $22,50 call at $1.60, you will be in profit after the shares hit $22.80 or $24.10. Of course, we'd like to see the share price higher, but those are the minimum prices the stock has to be at expiry to just breakeven. Of course, if there's a decent pop prior to January 2006, you may well be able to trade out at a profit. The point? Options, when purchased, are limited risk. IF HP goes profoundly south, all you can lose is the premium paid. In our example, each contract represents the right to buy 100 shares and would cost $280 or $160 depending on which call option you purchase. 100 'naked' shares of HP will cost you around $2125. If the shares drop $5, you'd lose $500. Pretty simple. For those who think there will be a profound decline, the puts are also reasonably priced. I'd look at the same strike prices. Purchasing an HP put gives you the right to sell HP at a specific price for a specific period of time. Basically, puts are limited risk way to short a stock. Always use protection. Just gotta own HP shares? Ok. If you purchase the shares at $21.25 and a January 2006 $20 put at $1.35 per contract, your cost per share will be $22.60. Since you have the right to sell shares at $20, courtesy of the put, your risk--exclusive of commish--is $2.60 a share. Basically, you have established a firm stop-loss on your HP position that can be adjusted or left in place until January 2006. If the shares drop to say, $15, the put would be worth at least $5 a contract. You could sell the put and keep the shares or 'put' the stock at $20. You'd only lose $2.60 a share in that scenario as opposed to over $6 a share if you didn't have the put in place. If the stock went to $25, your profit would be muted somewhat, as you'd lose that $1.35 a share that you paid for the protective put since it was added to your cost base. Think of the put as insurance that you didn't need. Finally, if you already own HP shares, a protective put may be worth bolting on.  To merely dive in and buy a slug 'o HP at this point is definitely a guts play. Go for it or even short the shares if you have the fortitude. For my money, I'd mitigate the risk with options. They were tailor made for just this kind of scenario--a fluid situation that's bound to change, but which way? I just can't believe that all this brouhaha won't pass. Hell. Martha went to freakin' jail and look at MSO. Given her stock's performance, maybe she should just stay there...but I digress, once again. And, if HP does happen to sell out to some other company or break up into separate companies, the options will likely be adjusted and still allow you to participate.  Faites vos jeux.   We Value Your Feedback Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 3525 Del Mar Heights Rd #334 San Diego, CA 92130   Unsubscribe Here D I S C L A I M E R: The SmallCap Digest is an independent electronic publication committed to providing our readers with factual information on selected  publicly traded companies. SmallCap Digest is not a licensed investment professional or broker-dealer. 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