# The crazy market

This is a time of tremendous turmoil. And during this time, we see rotations. However, to me, the pricing on the hard drive stocks simply does not make sense.

* They report being sold out through 2026 and are looking to close contracts for 2027.
* They are renegotiating all of their contracts, so we do not see the spot market increase, but most of the sell‑side analysts are saying that prices will not go down, and there is a lot of upside potential.
* They are all increasing their byte output with no substantial Capex increase.

On March 3, Gianluca Romano, CFO, presented at an investor conference and said that they do not need to increase Opex, other than SBC, which supports a leveraged business model. They are signing contracts into 2027, and they will take up pricing.  They will be awash with cash, and this will be returned to the stock holders.

The only issue is the PE multiple. The industry follows the typical boom‑bust cycle. At around the $350 level, Seagate’s PE is about 35, based on the last four quarters at roughly $9.91 EPS. However, earnings are radically increasing. Below is the consensus for both STX and WDC. It is hard to believe that the stock will not be able to sustain a 20x PE when things settle out.

To me, this means that along the current trajectory, it is hard to think that the forward 4‑quarter EPS is only about $17 according to consensus, which would give you a $340 stock at 20x PE. However, UBS just upgraded the stock (they were not a fan), and they still have a “hold,” but said the stock could go to $440. Virtually all the recent targets are in the $450 range.

However, analysts are all waiting for pricing increases, and this will be earnings‑related.  So, it is hard for me to believe that we won't see price targets raised at each earnings announce.

You can get a lot of insight into the market by how the options market is playing. You can buy the $350 STX call option 12 months from now for about $100. This implies that a lot of people believe in that $450 stock target. You could buy the stock for $350 (or so) today, wait for one year, and make 30% on your money, and call it a day.

Or you can rent the stock for the next two years.

Now this is not a Dragon King Stock, but we have diverted more than once here.

# How to rent the stock

Seagate was at $450; now it is at $350. I had no idea it would jump up that far, and no idea it would crash. There is no beating the traders, and they will torture you. However, I cannot believe that we will not see something decent by the end of 2027 in the terms of pricing recover. So I am going to rent the stock through a LEAP play. It is not sexy and fast, but it is putting on leverage because I think the current market makes no sense, yet I have no idea how long and how crazy it will be.

But it likely will not be more than a year.

This is called the **Deep In‑The‑Money (ITM) LEAPS strategy**. By purchasing a call option with an expiration date 22 months into the future and a strike price set 20% to 30% below the current market price, we essentially create a “synthetic” stock position. This allows us to control 100 shares of a high‑priced ticker for a fraction of the cost, usually around 25% to 35% of the total share price, effectively giving you built‑in leverage without the terrifying threat of a margin call.

If you have never traded options, this might sound “risky,” but this is risk management. The clarity comes from the long time horizon we have for things to recover. Two years is a good window.

You should research the Delta and Theta of the contract. A deep ITM LEAP typically has a Delta between 0.80 and 0.95, meaning your option’s value will move nearly dollar‑for‑dollar with the stock. Because you are going out 24 months, you are also protecting yourself from “Theta” or time decay that destroys shorter‑term trades. Time decay is not a linear process; it remains relatively flat and cheap for the first year of a LEAP’s life before accelerating sharply in the final nine months. By planning to exit your trade at the 12‑ to 18‑month mark, you capture the meat of the stock’s move while selling the contract before time decay begins to eat into your profits.

Furthermore, this approach offers a level of “catastrophic insurance” that margin trading simply cannot provide. If a “black swan” event causes the market to crater 20% in a week, a margin trader faces immediate liquidation or a forced deposit of more cash. As a LEAPS holder, your maximum risk is strictly capped at the premium you paid. You can simply hold through the volatility and wait for the recovery without being forced out of your position at the bottom. Additionally, by holding the contract for more than a year, you transition your gains from short‑term to long‑term capital gains, allowing you to keep significantly more of your profit after the tax man takes his cut.

# Let’s Play Seagate

As of March 2026, STX is trading around $354. It has pulled back from its recent high of $459, but the underlying narrative is intact. I will not replay my thesis here, but you can look at the consensus estimates at the end of the post to do some numbers.

The whole idea of this is: “Will the stock be above the $350 range in the next couple of years?” So you “rent” the stock, and if the price goes up, you participate. I am conservative, so I am going to buy as far out as possible and do the January 2028 LEAP.

You do not need to sell next March. If the stock looks good, you can hang on and ride until your expiration in January 2028, or even roll the call. We will not cover rolling in detail here, but when you roll the call and if the stock has gone up, you can now dump the money back into your account.

It is like refinancing your house (or “rental,” in our case) to pull out money.

# How Deep Do I Buy?

Today, I just could not take it anymore. I am not done buying, but I decided to start with some calls, not my full position. I started with the $110 call.

Let’s talk about this.

The $110 strike is the ultimate “sleep‑well‑at‑night” play. Your break‑even is roughly $362, just 2% above where the stock sits now. You outperform the stock by nearly 10% while keeping $10,000 in cash on the sidelines.

Conversely, the $250 strike is for the more bullish case. While your break‑even is higher ($388), you are generating nearly 70% more return on your capital than a share buyer if the thesis plays out.

The trade‑off is simple: deeper ITM calls give you a massive safety buffer and behave almost exactly like the stock, while moving slightly closer to the current price amplifies your percentage gains at the cost of a higher break‑even point. Regardless of the strike, the Jan 2028 date ensures that time is on your side, allowing you to ride through market volatility and wait for storage pricing to flow into earnings and push STX back toward its all‑time highs.

Below is a breakdown of how different strikes for the January 2028 expiration compare if the stock returns to its $450 high by next March assuming one option contract.  You'll make $88 per share on investing about $252 per share.

|Strategy (Strike)|Strike|Cost|Delta|Leverage|Profit at $450|% Return|
|:-|:-|:-|:-|:-|:-|:-|
|Safety @ $110|$110|\~$252.00|0.98|1.4x|$8,800|35%|

But, you can pick multiple options price, so let's run through some of our options.

# Scenarios

# Scenario A — "Per Share"

Calculated for an exit in 12 months (March 2027) assuming STX hits the target.

You'll notice on a per share basis, you always make less with more expensive calls.  This is the base, but not the way to think about it.

# Target Price: $450

|Strategy|Strike|Cost|Delta|Leverage|Profit at 450|% Return|
|:-|:-|:-|:-|:-|:-|:-|
|Safety|110|252.00|0.98|1.4x|8,800|35%|
|Balanced|200|175.00|0.88|2.0x|7,500|43%|
|Aggressive|250|138.00|0.78|2.6x|6,200|45%|
|Buying Shares|N/A|354.89|1.00|1.0x|95.11|27%|

# Target Price: $600

|Strategy|Strike|Cost|Delta|Leverage|Profit at 600|% Return|
|:-|:-|:-|:-|:-|:-|:-|
|Safety|110|252.00|0.98|1.4x|23,800|94%|
|Balanced|200|175.00|0.88|2.0x|22,500|128%|
|Aggressive|250|138.00|0.78|2.6x|21,200|153%|
|Buying Shares|N/A|354.89|1.00|1.0x|245.11|69%|

# Scenario B: $100,000 Portfolio Allocation (Ignoring Fractional Contract Issue)

Yes, you do make LESS per share, but you make more for an invested dollar.  You can buy more shares.  So, let's say you had $100,000 (minimum entry is 1 contract or 100 shares, so you need some money to play).  Now, you have to buy in 100 share increments, but we are going to ignore that for now.

How a fixed $100k investment performs under different strikes.

# Target Price: $450

|Strategy|Strike|Contracts / Shares|Capital Used|Total Profit|Total Return|
|:-|:-|:-|:-|:-|:-|
|Shares Only|N/A|281.7 Shares|100,000|26,800|26.8%|
|Safety|110|3.97 Contracts|100,000|34,936|34.9%|
|Balanced|200|5.71 Contracts|100,000|42,825|42.8%|
|Aggressive|250|7.25 Contracts|100,000|44,950|44.9%|

# Target Price: $600

|Strategy|Strike|Contracts / Shares|Capital Used|Total Profit|Total Return|
|:-|:-|:-|:-|:-|:-|
|Shares Only|N/A|281.7 Shares|100,000|69,000|69.0%|
|Safety|110|3.97 Contracts|100,000|94,486|94.5%|
|Balanced|200|5.71 Contracts|100,000|128,475|128.5%|
|Aggressive|250|7.25 Contracts|100,000|153,700|153.7%|

In my mind, the stock was at $450, and things are only going to get better.  However, does it hit $600?  Maybe.  But I would feel much better at a $500 price, to give some buffer.

# Target Price: $500 (+41% Move)

|Strategy|Strike|Contracts / Shares|Capital Used|Total Profit|Total Return|
|:-|:-|:-|:-|:-|:-|
|Shares Only|N/A|281.7 Shares|100,000|40,846|40.8%|
|Safety|110|3.97 Contracts|100,000|54,786|54.8%|
|Balanced|200|5.71 Contracts|100,000|71,375|71.4%|
|Aggressive|250|7.25 Contracts|100,000|81,200|81.2%|
|While I've done my first tranche at $110, I'm a swing to either side, and  the $250 option is interesting.||||||

# What Is The Consensus On Earnings

I pick 20 PE which seems reasonable to model numbers high level.  This really isn't the main part of the note, but is was in my Obsidian notebook where I scratch out my ideas, so I'll include it here.

# STX (Fiscal Year for '27 ends June 30, 2027)

Consensus Earnings Estimates

|Fiscal Year|EPS Value|EPS × 20|
|:-|:-|:-|
|2021|5.64|112.80|
|2022|8.18|163.60|
|2023|0.19|3.80|
|2024|1.29|25.80|
|2025|8.10|162.00|
|2026|12.99|259.80|
|**2027**|**20.32**|**406.40**|
|2028|24.31|486.20|
|2029|25.11|502.20|
|2030|29.13|582.60|

# WDC (Fiscal Year for '27 ends June 30, 2027)

|Fiscal Year|EPS Value|EPS × 20|
|:-|:-|:-|
|2021|4.55|91.00|
|2022|8.22|164.40|
|2023|\-3.59|\-71.80|
|2024|\-0.20|\-4.00|
|2025|4.93|98.60|
|2026|8.93|178.60|
|**2027**|**13.69**|**273.80**|
|2028|18.19|363.80|

Renting the Stock For Two Years: Deep In‑The‑Money LEAPS