I sold last week the strike 20 2013 WDC put for 299. I had bought it a month or so earlier for 260, I just could not get comfy enough with the idea that for that put to make money the stock would have to drop down fast, specially given how incredible resistant the stock has reacted to the Thailand flood news. I was in a sense fortunate to sell it since I could buy it back now for close to 220 but I do not think I want to do that for the moment. The company is definitely the market leader and has a great management, but it was hit by very bad luck and that should affect the share price, it will be OK in the long term, but it will likely have some serious issues before.
That put was financed by selling a strike 35 call, making a collar around 20 and 35 to protect my WDC shares against the flood situation. Now that I sold the put I am positioned with a covered call. Which is OK since I really would not mind selling at 38.
I am quite positive on the long term recovery of WDC but not before it goes down. For that same reason I also reduced my positions and sold yesterday 20 shares, keeping 100. I had bought the 20 shares before the flood and they were trading surprisingly at higher prices than when I bought… Until now the market does not seem to realize how bad the flood consequences will be, actually the stock is trading quite higher than before the flood, and now there are more bad news, like a half a billion payment owned to the main competitor Seagate due to litigation and forced asset sales, at a very bad market time. This is ruled by the European anti-monopoly commission, in order to be able to realize the Hitachi acquisition.
As soon as its quarterly results are shown or when the market realizes that the current situation is quite bad the stock should fall, by then I will maybe either buy more stocks or short some puts (or maybe do nothing). I am quite convinced though that the stock fall will happen because I have been trading this stock very successfully since 2007 and it has always been very influenced by short term developments: negative results will kick down the stock for sure.
Given my expectations of more downside due to the flood damages I do not want to start adding more positions yet, and I will only do it only at much lower price if the opportunity arises, and if I do not have better things to do, probably closer to 20 price level, certainly not close to 30 as it is now.
SLD 1 WDC JAN 18 ’13 20 Put Option 2.99 USD CBOE NOV 25 14:55:00 1.03
SLD 20 WDC Stock 27.61 USD ISLAND NOV 29 12:53:19 1.00