Option Trader Betting Big On Western Digital As A G-20 Winner

After a 3% rally on Monday morning from Western Digital Corp WDC in response to the trade war truce between the U.S. and China at the G-20 summit over the weekend, at least one large option trader is betting the semiconductor rally won’t last.

Tensions may have eased between the U.S. and China for the time being, but at least one trader with deep pockets isn’t optimistic about Wester Digital’s longer-term outlook.

The Trades

On Monday, Benzinga Pro subscribers received four options alerts related to Western Digital.

At 9:45 a.m. ET, a trader bought 700 Western Digital call options with a $48 strike price expiring on July 12 at the ask price of $2.521. The trade represented a bullish bet worth $176,470.

At 10:43 a.m., a trader sold 537 Western Digital put options with a $37.50 strike price expiring on Oct. 18 at the bid price of $1.115. The trade represented a bullish bet worth $58,875.

At 10:58 a.m., a trader sold 522 Western Digital put options with a $42.50 strike price expiring on Aug. 16 at the bid price of $1.046. The trade represented a bullish bet worth $54,601.

At 11:01 a.m., a trader sold another 501 of the same Western Digital put options with a $42.50 strike price expiring on Aug. 16, this time at the bid price of $1.005. The trade represented a bullish bet worth $50,350.

Together, the four trades represented more than $340,000 worth of bullish Western Digital options trades.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small sizes of the Western Digital options trades, it’s unlikely they are hedges.

Ride The Momentum?

Western Digital shares have been on a tear in recent weeks as China trade tensions have cooled, and the options market suggests that bullish momentum could continue in the months ahead.

Interestingly, Monday’s bullish Western Digital trades may all actually represent one single trade by a large option trader. Given the call buy was worth $176,000 and the three put sales total $163,000, a single large trader may have simply transitioned from a short (put) position in Western Digital to a long (call) position based on the G-20 agreement.

It appears the truce between the U.S. and China at the G-20 exceeded market expectations, especially when it comes to semiconductor stocks. However, bullish traders will need to see more follow-through and progress toward a concrete trade deal in coming weeks, or the rally may not last.

Western Digital's stock traded at $48.67 per share at time of publication.

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