Western Digital has been rising sharply all month, and one trader is doubling down for more gains in coming weeks.
OptionMonster's Heat Seeker tracking system shows that 2,000 January 40 calls were sold for $2.28 and 4,000 January 44 calls were bought for $0.63 and $0.64. Volume was below open interest in the January 40s but above it in the January 45s, indicating that a trader is rolling a position to a higher strike price.
The January 40s are in the money, even though the stock slipped 0.17 percent at $42.09 with the market slide on Friday. So the trader is selling those calls and applying the proceeds to the purchase of twice as many January 44 contracts. Our systems detected a similar roll on Dec. 11, when a trader sold 2,000 January 37s and bought 5,000 January 40s.
Shares of the computer hard-drive maker have been on a wild ride this year, running from a 52-week low of $28.31 in late June to its year high of $45.94 just six weeks later. The stock then fell to support around $33 and has been rebounding strongly in December, rising above several key moving averages along the way.
The sector has been particularly volatile ever since the devastating floods of 2011 in Thailand, where an estimated one-third of the world's hard drives are produced. And just as the industry is recovering from that disaster, companies face growing concerns that tablets are killing off PCs.
Friday's option trader apparently believes that those concerns are overblown and is now looking for Western Digital to close above $44 upon expiration on Jan. 18. The calls, which lock in the price where the stock can be purchased, could be sold at a profit earlier if they gain value with any rally before then, but they will expire worthless if the stock doesn't rise.
The trading drove total option volume in Western Digital to 14,697 on Friday, nearly double its daily average in the last month.
—By CNBC Contributor Mike Yamamoto
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Mike Yamamoto is the managing editor of OptionMonster. Yamamoto has no positions in WDC.