Western Digital Stock Helps Call Traders Nearly Quadruple Their Money

WDC call traders bagged a 279% profit in less than one week

Managing Editor
May 6, 2022 at 8:00 AM
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Subscribers to our Schaeffer's Weekly Options Countdown services scored a 279% profit with our Western Digital Corp (NASDAQ:WDC) weekly May 6, 51-strike call recommendation in less than one week. Let's explore our reasoning for initiating a long position on the tech stock, and dive into how WDC has performed in the last five four days. 

When we made our recommendation on Sunday, May. 1, the company was fresh off a positive post-earnings reaction of 0.9% on Friday, even amid a broad market tech selloff. While the rest of the tech sector was getting pummeled, WDC rang up a six-day winning streak until May 5. 

Schaeffer's Senior Market Strategist Bryan Sapp, CFA, in his Playbook of the Week on Monday, called out WDC's $52 level as an area to watch. That level was near-term resistance that was taken out last week, and there was no pullback to this area to start the month. As Sapp noted, there was considerable risk/reward setup there. 

One day earlier, in the Weekly Options Countdown explainer, we noted that $52 level coincided with the -20% level, while the 50-day moving average was also toppled. Amid recent technical strength, WDC was forming a triangle breakout pattern, per the chart below. There was also potential for price-target hikes, which could goose up the shares in the short term.

On Tuesday, activist investors Elliott Management wrote a letter to Western Digital's investor board asking the company to consider separating the company into on hard-disk drives and flash memory units. In the hopes of more efficient and profitable operations, Elliott offered an over $1 billion equity investment into Western Digital's flash business.

In response, WDC gapped higher that day by 14.5% to as high as $62.61. While the trade was closed Tuesday morning, sure enough, two brokerages upped their price targets on Wednesday morning. So in less than a week, subscribers were able to lock in a 279% profit, nearly quadrupling their money on Western Digital's extended breakout. 

May Postmortem WOC WDC

 

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