Big Printin’ – $STX Disk Dive

by Dan May 3, 2016 3:57 pm • Commentary

Shares of hard disk drive maker Seagate Technology (STX) are trading at fresh 52 week lows, and very near 4 year lows today. The stock is down 72% from its all time highs made in early 2015.  The five year chart of STX shows how beautiful up-trends that overshoot on the upside can turn into horrid down-trends and overshoot the other way too:

STX 5 year chart from Bloomberg
STX 5 year chart from Bloomberg

The stock went from $35 in early April to $25 on worse than expected Q1 results and forward guidance, but the move in the last few days from above $25 has to do with investor concern the company will need to cut their 63 cent quarterly dividend which is currently yielding 13%. The company debt to capital ratio is starting to look a bit like a levered energy company with a $5.8 bil market cap, $1.2 bil in cash and $4.1 bil in debt.

Options volumes are running hot today with total volume 2x average daily, with puts outnumbering calls nearly 3 to 1, with one bearish roll making up a good bit of the activity.

When the stock was $19.47 a trader sold to close 15,000 September 20 puts at $3.30 and rolled the bearish (or defensive) view down, by buying to open 15,000 of the September 15 puts for $1.05, which now break-even at $13.95, down 28% from the trading level.