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Market Insights

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Options Alert: Bearish Traders Could Be Sticking With Western Digital

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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.


Options trading is not suitable for all investors. Your TradeStation Securities’ account application to trade options will be considered and approved or disapproved based on all relevant factors, including your trading experience. See Characteristics and Risks of Standardized Options. Visit www.TradeStation.com/Pricing for full details on the costs and fees associated with options.

About the author

David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.