Western Digital (WDC) continues to face structural and cyclical challenges that pose significant risks to its near-term outlook. I’ll describe an options trade that wins if the tough times continue. While the company showed some signs of recovery in its latest earnings report, including revenue growth driven by strength in the flash segment and improved operational efficiencies, these positives were overshadowed by a revenue miss. This underperformance raises questions about WDC’s ability to execute effectively in an environment of heightened competition and persistent supply chain disruptions. Market share erosion in key segments remains a concern, and the company must address these headwinds while navigating pricing pressures in both HDD and flash storage markets. With the earnings report in two weeks, any deviation in revenue expectations or a downward adjustment in forward guidance could trigger substantial downside risks for the stock. If we look at a chart of WDC, it has consistently underperformed the S & P 500 since June 2024. The stock has continued to print lower lows and lower highs over the past month, suggesting skepticism about its near-term prospects. With earnings set to be released in approximately two weeks, there is an elevated risk of a negative shift in forward guidance. And if we evaluate the business, WDC trades at what seems like a cheap 9 times forward earnings, however, with net margins hovering just above 2%, this valuation reflects concerns about its ability to sustain profitability and execute its strategic initiatives effectively. With expected revenue growth of just 12% over the next 2 years while EPS declines, WDC lacks the cushion to absorb unexpected challenges. Operating margins at 10.7% also remain below industry peers, further highlighting the company’s operational inefficiencies. These razor-thin margins amplify the impact of any revenue shortfalls, leaving little room for error in the company’s execution plan. Looking ahead, WDC must address its market share declines. While the company’s focus on high-capacity storage solutions aligns with growing global data storage demands, external headwinds remain significant hurdles. Until they can demonstrate a more sustained turnaround, the stock remains vulnerable to further downside pressure. The trade With earnings on deck, I would suggest using a debit vertical spread to capture the potential downside with limited risk. This would allow for a positive risk to reward ratio to capitalize on this bearish setup. We are suggesting buying the March $65/$55 put vertical at $3.43 debit. This entails: Buying the March $65 put @ $4.78 Selling the March $55 Put @ $1.35 This options strategy allows investors to profit if WDC remains below $61.57 by expiration. The maximum potential reward is $657 if WDC is below $55 at expiration, with a maximum risk of $343 if WDC is above $65 at expiration. Click here to view this trade with updated pricing on OptionsPlay . DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
A once popular tech play has lost its way. How to capitalize on it using options