Tuesday Options Update: WDC, JPM, STEC & ATHR

Western Digital Corporation (WDC) – The maker of hard-disk drives, which in March acquired SiliconSystems, today announced the launch of its first suite of hardware through its new unit. The new computer storage systems supposedly feature faster read/write speeds and carry increased capacity. The company claims that the latest technology is a perfect multimedia and data content storage venue and hopes to use its global sales and distribution channels to help reach a new audience outside of SiliconSystems’ established reach. Shares in the company are lower by 1.2% at $24.57 in early going and option traders appear to have a thing about the July 22.5 puts where option volume today has swollen to more than four times closing open interest. Bearish option plays started early in the session where investors paid 75 cents to claim selling rights at a fixed share price of $22.50 ahead of July’s expiration. Western Digitals have about doubled since March topping out above $25 recently. Near-term support at $23.00 appears to be the big hurdle while implied volatility is up nearly 20% today at 56%. Much of today’s put buying pressure appears to center on a recommendation to do so judging by the trading pattern of volume.

JPMorgan Chase & Co. (JPM) – The banking institution’s shares have recovered from a slight decline at the start of the trading day and are currently up less than 1% to $34.09. Options activity observed on the stock suggests mixed sentiment by medium- to-long-term investors populating our screens. One bullish trader looked to the September 34 strike price to sell 5,500 puts for a premium of 3.70 per contract. The trade has rewarded the investor with rich, nearly in-the-money, put premium. In exchange, the investor is obliged to have shares of the underlying put to him by expiration at an effective price of $30.30 each if the puts land in-the-money. In contrast to the put-selling activity, a bearish trader was seen scooping up approximately 7,300 puts at the December 30 strike price for 3.45 each. This transaction could indicate that this trader expects JPM’s share price to erode significantly over the next six months. In order for the investor to garner profits to the downside, the stock would need to decline 22% from the current price and fall beneath the breakeven point at $26.55 by expiration. We note that shares of JPM have not traded beneath $30.00 since April 20, 2009.

STEC, Inc. (STEC) – The manufacturer of custom memory solutions appeared on our ‘top option implied volatility % gainers’ market scanner this morning as volatility on the stock climbed 29% from yesterday’s reading of 62% to as high as 80%. Currently, volatility has come off slightly to 74% amid a more than 30% rally in the price of the underlying to $23.28. STEC significantly increased its forecast for second-quarter earnings to a range of $0.32 to $0.36 versus previous guidance of $0.20 to $0.22 per diluted share. The bullish announcement by the firm sent shares flying right through the existing 52-week high of $21.43 and attracted bullish call buyers to the STEC-arena. The now in-the-money June 22.5 strike price had 1,500 calls bought for an average premium of 91 cents apiece while the higher June 25 strike had 1,000 calls purchased for 37 cents per contract. Investors long the June 22.5 strike calls are hoping shares rise a paltry 13 cents in order to breach the breakeven point at $23.41 by Friday.

Atheros Communications, Inc. (ATHR) – The wireless and wired communications products company edged onto our market scanners today after an investor looking to profit from continued bearish movement in the stock initiated a put spread in the September contract. Shares of the firm have slipped more than 3.5% to stand at $18.09. The trader communicated his pessimism by purchasing 4,000 puts at the September 17.5 strike price for 1.30 apiece spread against the sale of 4,000 puts at the lower September 15 strike price for 52 cents each. The net cost of the debit spread amounts to 78 cents and yields maximum potential profits of 1.72 to the investor if shares slip down to $15.00 by expiration. Profits will begin to accumulate if the stock falls another 8% to the breakeven point located at $16.72.