Shares of hard drive manufacturer Seagate Technology (STX) have been cut in half over the past year amid slowing demand for computer and computer parts. One trader sees a further decline over the next two years.
That’s based on the January 2025 $55 puts. With 758 days until expiration, 5,000 contracts traded compared to the prior open interest of 117, for a 28-fold rise in volume on the trade. The buyer of the puts paid $14.48 to make the trade.
Shares recently traded near $50, meaning the options are already about $5.00 in-the-money. That could give them a further boost in the months ahead if shares retest their 52-week lows of $47.47 per share.
Earnings have dropped 94 percent in the past year, and revenues are down 35 percent. That slowdown is likely to continue as the pandemic-era surge in demand for computers continues to move back to its long-term slowing trend.
Action to take: Investors should hold off here. While Seagate offers a nice 5.4 percent dividend, that payout may be at risk if the business continues to decline in the year ahead.
Patient investors can likely fare better buying after a dividend cut, as that will likely lead to a big drop in shares should it occur.
For traders, the January 2025 are well-positioned for the current market weakness, as well as a further drop in the tech space in the next two years. Traders can likely nab high-double-digit gains on this trade.
But be on the lookout for a market turnaround to cause shares to move higher, even if the company’s fundamentals remain poor.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.