Western Digital Stock Options Surge on Toshiba News

Tension between Western Digital and Toshiba surfaced after the former was snubbed as a potential suitor for the latter's chip division

Jun 23, 2017 at 2:17 PM
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Options volume has exploded on Western Digital Corp (NASDAQ:WDC) today, with more than 40,000 contracts traded, three times the average intraday pace. WDC stock is trading up 4.6% at $94.43 -- fresh off a two-year high of $95 -- on news that Toshiba is willing to talk with the data storage specialist following an intense dispute over the sale of the Tokyo conglomerate's semiconductor division.

As such, most of the day's action has centered on calls, which are outpacing puts by a 2-to-1 margin. A number of WDC options traders are betting on even higher highs for the tech stock over the next week, with buy-to-open activity detected at the weekly 6/30 92.50- and 95-strike calls. Regardless of where Western Digital shares end at next Friday's close -- when the weekly options expire -- the most the call buyers stand to lose is the initial premium paid. 

This bullish outlook from options traders is nothing new. The stock's top two open interest positions are the July 90 and 95 calls, where 26,557 contracts collectively reside. Data from the major options exchanges confirms significant buy-to-open activity here, meaning traders expect WDC shares to settle north of the strikes at the close on Friday, July 21.

Now appears to be an attractive time to purchase premium on Western Digital's short-term options, too. While the stock's Schaeffer's Volatility Index (SVI) of 31% ranks in the 10th annual percentile -- suggesting low volatility expectations are being priced into near-term options -- its Schaeffer's Volatility Scorecard (SVS) is docked at a lofty 85. In other words, the shares have tended to make outsized moves, relative to what the options market has priced in.

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