Western Digital Stock Breaches Two Key Technical Levels

WDC options are attractively priced

Managing Editor
Nov 29, 2017 at 12:23 PM
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The tech-heavy Nasdaq Composite (IXIC) is in the midst of its worst single-day session in months. Western Digital Corp (NASDAQ:WDC) is one tech stock in particular that is feeling the pain, with the equity breaching two key technical levels today. Here's a closer look at WDC stock's performance lately, and how options traders are playing the tech stock.

What was once a solid year for Western Digital stock has turned sour, with the equity shedding 9% in the past three months. At last check, WDC was down 6% to trade at $81.53, breaching the tech stock's formerly supportive 200-day moving average. This $82 region also represents a 61.8% Fibonacci retracement of WDC's decline from its 2015 high to 2016 low. The good news is that the round $80 level contained the stock's pullback in mid-August. 

Fib Levels WDC

Short sellers are starting to come out of the woodwork in droves. Short interest increased by 27.6% during the last reporting period to 9.33 million shares, more than double the amount from mid-May. 

In the options pits, speculators have taken a bearish tone in recent weeks. The security's Schaeffer's put/call open interest ratio (SOIR) of 1.22 ranks in the 86th percentile of its annual range, pointing toward an unusual put-skew among near-term options traders. An unwinding of some of the hedges related to these bets could create tailwinds for WDC.

Digging deeper, however, reveals that the December 92 call has seen the biggest open interest increase in the past two weeks, and now represents peak call open interest in the newly front-month series, with more than 21,300 contracts in residence. Buyers of the call expect Western Digital stock to bounce back in the short term.

Regardless of direction, near-term options on the tech stock are attractively priced right now. WDC has a Schaeffer's Volatility Index (SVI) of 30%, which ranks just 10 percentage points from a 12-month low. Said differently, volatility expectations for short-term options are unusually muted right now.

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