Options Corner: Recent STX Pullback Doesn’t Tell Full Story

Time now for our chart of thedah the charts plus an example. Today we've got Tom white, options contributor. All ri Tom. So we're going through the charts for Seagate. Still a great year for Seagate despite last week's pullback. But what do you notice in the charts. Yeah I think if you take a look at the charts on Se you know you saw that pullback pretty hard sell off on the Toshiba News. Mbe doubling their HDD output. But still that's not going to dig into much market share from Seagate and Western Digital. I still wanted to get give you some context as far as a longer term chart Seagate, because you can see here from a three year weekly chart, we were down about $68 three years ago this stock. we've rallied even though we've seen a little bit of volatility a little bit of chop here. We've rallied over 1,140% from thoseevels over the last three years. So it's been g for investors that have been in the stock for the last couple of years. I got another chart that's a little bit shorter term, and it gives you a little bit of reflection about the choppiness that we've seen recently, the pullback from all time highs This is a one year one day chart. And we had those all time highs in June of about $145. What we've pulled back as of Friday's close about 2 we're in bear market terri Even though we're seeing a little bit of a pop in shares today. A couple of percent on this r as these analysts come out a say, hey, everything's okay with this Toshiba news, Seagate is still going to do pretty well. But you can see the chop here that seen recently. Stocks still over 208% so far thi year. We did go below this 50 day simple moving averag just last Friday. You're seeing that big green candle where we rallied the lows. You can that. And we're going to open up above that. Today. We're going to be opening up about $870. Now you star taking a look at s the volume profiles where support might be. Well we've had support repeatedly a this level here just below the 800 level. We're goi to be back above that 50 day simple moving average. You got a big line around 800. That's going to be an area of support. We've got someore up here about $840. So if weget some downside movement, that 800 level, that 840 level m act as levels support here for the shares. Now you look at the RSI saw that big draw down on the newsast week where we dipped the 50 level. So momentum losing a le bit. But that should r relatively quickly today here Diane as the stock's up over 2%. Okay. And what's the approach we would take for an example trade Tom. Well with a high priced stock $870 youto be a little bit cautious. I went a litt passive where I can still take a directional bias in Seagate Technologies ifI have to be aggressive about it. I can high probability tr here. So the one that I looked at is a short neutral to bullish put vertical where I'm going to sell an out of the money put. I'm goingo go out to the October 16th monthly option. So just 11 days to expiration. Really short term positioning with the expectations. Hey there was levels ofht 4800 might hold moving forward and giving myself a bet probability of success. So we're going to selle going to sell this buy the 780 put. So a s $20 wide neutral to bullish vertical stock opens up here about $870. You're probabl going to collect about a 450 credit. So there's your profitability. You can make $450 per spread with t t if I'm collecting that 450 credit, look wher break even goes down to5.50. That's about 8.5% below the 870 level where the stock looks like it's going to open up. So you've got that big cushion to the de here for protection. Now yout in three out of four scenarios.Stos where it is or stock goes lower. You're wrong. But remains above that break even of 7950. You're going to befitable on this now. The 800 put that probability of success as I mentioned about 70% probability that that short 800 strike that you're selling in this strategy will be out of the money at expiration. So those trade offs that we talk about, Diane, where I'm risking 1550 to make only 450, but I've got a pretty good chance of being profitable on this one, as long as the stock remains above that even of 7950 over the next 11 days. All right. We had a lot of talk about memory today. Thank you. Tom, that is Tom white, co-host of Fast Market. You can catch Tom and I later today at