WDC Underpriced Bullish Call Spread has Profit Potential of 126%

29 May 2024, 10:34 AM

Re-Tweet
Share on LinkedIn

By Dmitry Pargamanik

How this WDC Bull Call Spread Works

The bottom of the WDC trade card shows us that we would buy one call and sell another with the same 21-Jun-24 expiration (this is a bull call spread as indicated on the top of the card).

Buy: 21-Jun-24 77 CALL

Sell: 21-Jun-24 80 CALL

Reasons to Like This Trade

  • You can buy this spread for $1.33 when theoretically it’s worth $1.57. Simply put, the market is implying a theoretical edge of 18.1%.
  • Your maximum gain is $1.67, which means you can make an astounding 125.6% return on your investment in 17 trading days! (That's if the stock closes at 80 or above. $1.67 / $1.33 = 125.6%) At the time of this alert, the stock was trading at 75.78.
  • The stock only needs to close at, or above, 80.00 after 17 trading days for you to realize this maximum return. That’s only a 5.6% gain! If you look at WDC historically drift, you will find that 57% of the time the stock drifted higher than 5.6% in 17 trading days. Based on historical stock behavior (historical stock drift) the spread has a 57% chance of success.
  • 5 out of 7 indicators are pointing to a bullish sentiment in the stock, which is enough to believe there is a decent chance the stock price could hit its mark of 80.00. Look, nobody knows for sure if the stock is going to go up or down, but, if you had to handicap the stock price, these metrics are indicating that WDC is really riding the momentum of bullish signals.
    Metric Signal Bull or Bear
    Relative Performance 1-yr Outperform Bullish WDC Bullish Relative Performance 1 year
    Relative Performance 3-Mon Outperform Bullish WDC Bullish Relative Performance 3 Month
    Relative Performance 2-Wk Outperform Bullish WDC Bullish Relative Performance 2 Week
    Seasonality Weak Bearish
    Technical Uptrend Bullish WDC Bullish Technical Indicator
    Historical Price Action 57% Uptrend Bullish WDC Bullish Historical Price Action
    Option Order Flow Sentiment Zero Net Option Delta Neutral

Conclusion

This trade in WDC looks like a good opportunity because:

  1. 5 out of 7 bullish indicators support positive momentum
  2. 125.6% potential return on your investment
  3. Theoretical edge of 18.1%
  4. The stock price is only 5.6% away from the price for you to make the maximum gain!

Don't Let an Opportunity Pass You By!


How to Find More WDC Bull Call Spread Strategies

How you can find bull call spread trade ideas for other stocks


And if you want to find more bull call spreads for other stocks, go to the bull call spread screener


Relative Performance

WDC has outperformed the market in the last year with a price return of +91.6% while the SPY ETF gained +26.9%. WDC has also outperformed the stock market ETF in the last 3 month and 2 week periods returning +32.4% and +3.5%, respectively, while the SPY returned +4.3% and +0.6%, respectively.

Learn about a stocks relative strength


Seasonality: Weak

The strategy involves holding the position from May 29 to Jun 21 expiration. Historically, this has been a weak seasonal period. In the past 12 years, WDC shares have decreased 58% of the time between May 29 to Jun 21, while averaging a return of -4.2%. Learn how to look up stock seasonality.

Technical: Uptrend

The stock price and moving averages are all crossing each other in a positive trend.

Historical Price Action: 57% Uptrend

In the last 4 years, there were 23 historical samples of WDC stock price movements over the same time period as this option spread. The stock moved up 57% of the time for an average return of +9.3%.

How to generate statistics on a stocks historical price return distribution

Option Order Flow Sentiment: Zero Net Option Delta

Videos you might like

How to Screen for the Best Bull Call Spread


Contact Information:


If you have feedback or concerns about the content, please feel free to reach out to us via email at support@marketchameleon.com.


About the Publisher - Marketchameleon.com:


Marketchameleon is a comprehensive financial research and analysis website specializing in stock and options markets. We leverage extensive data, models, and analytics to provide valuable insights into these markets. Our primary goal is to assist traders in identifying potential market developments and assessing potential risks and rewards.



NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated and may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices and were not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


The information is provided for informational purposes only and should not be construed as investment advice. All stock price information is provided and transmitted as received from independent third-party data sources. The Information should only be used as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments and trading strategies. The Company does not guarantee the accuracy, completeness or timeliness of the Information.