HP (NYSE:HPQ) is flying high heading into this week’s earnings report. Poor reports from FAANG tech stocks like Facebook (NASDAQ:FB) and Netflix (NASDAQ:NFLX) left a bad taste in investors mouths this earnings season. But the fall in FAANGs has been a boon for value plays in the tech sector. And HPQ stock is benefitting.

Since the beginning of July, HPQ stock has rallied nearly 10%. The ride higher hasn’t been a smooth one. HPQ remains vulnerable to panic selling in the tech sector, brought on by weakness in FAANG quarterly reports. But the stock’s rally has continued nonetheless. HPQ continues to find support at its 50-day and 200-day moving averages, as traders snap up dips in the shares.

Click to Enlarge HPQ is now trading near five-year highs. However, this rally has left HP a little thin on buying strength. The stock’s 14-day relative strength index (RSI) is nearing overbought conditions near 70 — a region that has sparked profit taking in the past. Additionally, sentiment price resistance could emerge near $25.

Another strong report from HP could allay some of those fears and push the stock into a consolidation pattern north of $25.

Last quarter, HP surprised investors with a 13% jump in revenue and a 20% pop in earnings per share. It seemed that HP was enjoying a resurgence in its PC and laptop businesses despite an overall slowdown in those markets.

Targets are only a bit more restrained this time around. Wall Street is expecting an 18% rise in earnings to 51 cents per share, with revenue seen climbing 9.2% to  $14.26 billion.

Sentiment has followed HPQ’s price action higher in the past couple of months. Data from Thomson/First Call shows that the number of “buy” ratings on HPQ stock is up to 12 out of 19. The consensus price target currently rests at $26, and could use some tweaking higher if HP’s trend from last quarter continues.

Finally, while this isn’t a direct indicator of buying potential (or lack thereof) for HPQ stock, short sellers have fled the shares recently. In fact, during the most recent reporting period, the number of HPQ shares sold short plunged by 21%. These former bears apparently saw something they didn’t like, and it could be an indication that the current bull trend has more momentum that many expect.

What’s more, weekly Aug. 24 implied volatility is pricing in a potential post-earnings move of about 4.9% for HPQ stock. This places the upper bound near $25.50, while the lower bound lies at $23.50. It’s worth noting that the lower bound here also coincides with HPQ’s rising 50-day moving average.

2 Trades for HPQ Stock

Call Spread:  A bullish position here is a bit of a risk in HPQ, given the stock’s near overbought technicals. However, a repeat of last quarter’s fundamental strength should push the shares higher over the short term. Traders looking to bet on a bullish breakout might consider a Sep $25/$26 bull call spread.

At last check, this spread was offered at 31 cents, or $31 per pair of contracts. Breakeven lies at $25.31, while a maximum profit of 69 cents, or $69 per pair of contracts — a potential return of 122% — is possible if HPQ stock closes at or above $26 when September options expire.

Put Sell: There is a more neutral strategy to be had on HPQ that banks on the stock’s technical support levels. Specifically, an Aug. 24 $23.50 put sell should close out of the money unless HP really bombs it’s quarterly report. Price support and the stock’s 50-day moving average both reside in the $23.50 area, and should keep this option out of the money.

At last check, this put was bid at 24 cents, or $24 per pair of contracts. As long as HPQ stock holds above $25.30 through expiration, traders will keep the $135 premium. However, if HPQ trades below $23.50 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $23.50 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.