Traders are apparently worried about the possibility of bad news in Western Digital.
optionMONSTER's Depth Charge monitoring program detected the purchase of some 3,000 April 92.50 puts for $2.10 and the sale of an equal number of April 82.50 puts for $0.40. Volume was more than twice the previous open interest at both strikes, which indicates that this is a new vertical spread .
The strategy cost $1.70 and will earn 488 percent if the maker of computer hard drives closes at $82.50 or lower on expiration. The long puts lock in the level where the stock can be sold, gaining value in a pullback, but the short puts can force the trader to buy shares if they fall below the lower strike price. Combining the two captures a move between two levels--in this case from $92.50 down to $82.50. (See our Education section)
WDC slid 1.39 percent to $97.19 on Friday and is down 10 percent in the last month. Investors have ignored the data-storage company's strong earnings, fearing that it will be hit by the same PC slowdown weighing on Microsoft and Intel. Rival Seagate Technology has also been falling after poor report in January.
Last week's activity is noteworthy because the put spread will expire before Western Digital's next earnings report. That means the trader may expect a negative pre-announcement in the next few weeks.
Overall option volume in the name was triple its daily average, with puts accounting for a bearish three-quarters of the total.
More From optionMONSTER