Based on the large put order for Western Digital, I created a scaled-down strategy.

Storage has been a hot topic for the past few months, and I've been keeping a close eye on it. Early this morning on $Western Digital(WDC.US), I saw a noteworthy order: someone sold 500 puts expiring on 7/17 with a strike of $510 in one go, for a total premium of $2.58 million, averaging $51.6 per contract—a near-the-money put fetching $51.6 is 10% of the strike, with an absurdly high implied volatility (IV). This guy is basically telling the whole market: I'm willing to take delivery of Western Digital at $510 and collect a hefty rent in the process.

Looking back at the underlying stock's performance: The day before yesterday, the stock was down -5.3% along with the storage sector, but last night it directly V-shaped rallied 8%, surging to $544.12 after-hours; analyst Mizuho raised its target price to $685 on 6/9, and JPM also raised theirs—this might indicate that the narrative of AI storage demand is still intact, but price volatility is huge (hence the fat put premiums).

Selling near-the-money puts when IV is this high and the bias is bullish is the most comfortable way to collect rent—as long as WDC doesn't fall below $510 before 7/17, that $51.6 is free money; even if it breaks through, the cost basis for taking delivery is pushed down to $458.4, still around the low from 6/10. The institution is betting on "volatility remains, but downside is limited."

Based on this order, I thought of a scaled-down strategy to avoid the risk of naked selling: create a $510 / $490 bull put spread, selling the $510 put while buying a $490 put to lock in the downside. This way, the maximum loss is capped at the $20 spread from the moment the position is opened, and the maximum profit is the net premium received. The stop-loss is simple: if the underlying stock breaks below 489, it means the V-shaped reversal has been invalidated.