Bearish option positions opened before Western Digital’s quarterly results last month are paying off big time today.
On July 24, Investitute’s tracking systems found that 2,100 Weekly $88 puts expiring tomorrow were purchased for $0.94 to $0.99 with shares at $95.05. Open interest in the strike was just 17 contracts before the activity appeared, showing that it was fresh buying.
This afternoon those puts traded for $8.67, an average gain of 800 percent. The stock fell 19.8 percent in the same time frame, underscoring how options can far outperform their underlying shares.
Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.
WDC was down 2.22 percent today to close at $79.19. The data-storage and hard-drive maker fell sharply on July 27 despite beating earnings and revenue estimates, and shares have yet to recover.