Options Alert: Bearish Traders Could Be Sticking With Western Digital


Western Digital tried to bounce after a big drop, but the bears don’t seem to be going away.

Check out this unusual options activity in the maker of data-storage products:

  • A block of 7,500 October 36 puts was sold for $2.05.
  • A trader bought an equal number of October 34 puts for $1.21 at the same time.
  • Volume was below open interest in the 36s, which suggests he or she rolled an existing position from on contract to the other.

Puts fix the price where investors can sell a security, so they can gain value to the downside. In the case of Thursday’s transaction, the trader likely began the session with a profitable position in the 36 puts. They apparently sold those options in favor of the 34s.

Making the adjustment freed up $0.84 of capital. It also let the trader profit from further declines in the share price.

Western Digital (WDC), daily chart, with 50-day moving average and daily put volume.

Apart from the put roll cited above, there was also heavy buying in the 34s for $0.98 and $0.99 earlier in the session. All told, WDC’s put volume was the most since June and 5 times greater than the average in the last month, according to TradeStation data.

Data Center Weakness

WDC fell 0.30 percent to $37.06 yesterday and has lost 43 percent of its value this year. Falling demand for electronics and data-center systems have weighed on memory-chip prices. That caused revenue to miss estimates on August 5. It also prompted management to guide full-year results more than 20 percent below consensus. Firms including Benchmark, Deutsche Bank, and Mizuho responded with downgrades last month.

Micron Technology (MU), another memory-chip maker, also missed estimates and issued downside guidance last week. A third company in the segment, Seagate Technology (STX), has followed a similar path.

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