Western Digital Corporation (WDC) has seen a drop of 8.89%, bringing its stock price down to $199.88. This decline provides a unique opportunity for traders, even though important levels are a bit out of reach. WDC’s stock has nearly doubled since it hit lows of $110-$115 in October. It is now facing resistance at an upward trendline around the $220-$225 range. This resistance has previously stopped price increases in October and November, indicating that sellers are active in this area. At present, this resistance line projects to $235.55, which could be a potential third test point for this trendline. Typically, the third test is crucial, as it can lead to significant changes in market direction. To reach this target, WDC would need to climb about 18% from its recent close. This requires the bulls to regain their footing and build momentum following the recent selloff. For those looking to short the stock, a third rejection at this level could present a good opportunity. A drop of 15-20% could lower shares to around $187.50, which aligns with previous support levels. It’s important to manage risk carefully. If the stock closes above $235.55, it would invalidate bearish expectations and could lead to new highs. Traders should remain patient as the focus is on the stock’s recovery towards this level. Reflecting on early 2025, it was advised to monitor for a third rejection at the upward trendline near $235.55. Patience was key, as the company’s situation was about to change dramatically. The market never provided that third test, and the fundamentals shifted significantly before reaching that technical level. A major event in 2025 was the company’s split into two distinct, publicly traded entities: one for flash memory and one for hard disk drives (HDD). This separation, completed in the second half of 2025, reset the trading landscape. Old technical patterns became less relevant as we began assessing the businesses on their own merits. The new flash company recently reported much stronger-than-expected revenue due to a noticeable recovery in demand for NAND products. Flash shipments rose over 25% sequentially, indicating that the cyclical downturn seen in 2024 is over. This recovery has increased volatility and opportunities in the options market. Instead of waiting for a short position, the focus should now be on capturing momentum in the agile flash business. Traders are positioning themselves by buying out-of-the-money call options expiring in the next 45 to 60 days. Additionally, selling cash-secured puts at recent support levels can provide a way to earn premium while preparing for a good entry point if the market pulls back. Conversely, the legacy HDD business is now considered more stable and value-oriented, with predictable cash flow. In this case, derivative strategies shift from seeking rapid growth to generating income. We suggest selling covered calls on a core stock position as a viable way to earn yield in what we expect to be a lower-volatility environment for that segment.

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