This Strategy Pays You 12% While Lining Up STX at Bargain Prices
At about $418.63 a share, Seagate Technology (STX) is trading about 6.3% below its 52W high.
Do you think STX stock is a good long-term bet at current levels? What about at a 50% discount at about $210 per share? If you think that is a steal, and have some cash ready to go, here is a trade.
12% annualized yield at 50% margin of safety, by selling Put Options.
- Sell a long-dated Put option expiring 1/15/2027, with a strike price of $210
- Collect roughly $1,600 in premium per contract (each contract represents 100 shares)
- That’s about 8.1% annualized yield on the $21,000 you’re setting aside for the possibility of buying the stock
- This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 12.1%
- And you give yourself a chance to buy STX stock at deep discounted price of $210
However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.
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Possible Trade Outcomes: You Win Either Way
| Stock Price Outcome | What It Means For You |
|---|---|
| STX stays above $210 | You keep the full $1,600 premium – 7.6% extra income over the next 345 days on cash that might otherwise earn you 4.0% or less. You never buy the stock and simply walk away with the cash. |
| STX closes below $210 | You’ll be obligated to buy 100 shares at $210. But thanks to $1,600 premium, your effective cost basis is just $194.0 per share – a roughly 54% from current level. |
But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.
First, you want fundamentals to check out. For details, see Buy or Sell STX Stock or check Seagate Technology Investment Highlights
Second, you want to better understand competitive advantage and industry tailwinds. Below is what specifically gives us the conviction.
Why Hold STX Stock Long-Term
Seagate operates in a functional duopoly for a critical component of the digital economy. The secular growth in data, supercharged by the AI megatrend, ensures massive demand for its core product: cost-effective mass storage. While SSDs are a threat, the sheer volume of data being generated for AI training and cloud storage makes HDDs indispensable for the foreseeable future based on cost. If assigned the stock, we would be owning a high-margin, cash-flow-positive leader in a structurally growing industry with high barriers to entry.
Competitive Advantage
We classify STX’s economic moat as WIDE, with the primary source being Pricing Power
- Seagate is ‘effectively sold out through 2026’ due to surging AI-driven data center demand, which strongly supports pricing power.
- The company reported record gross margins, which expanded to 42.2% in its fiscal Q2 2026, demonstrating its ability to increase prices in a supply-constrained market.
- The HDD market is an oligopoly, with Seagate, Western Digital, and Toshiba controlling over 95% of shipments, creating high barriers to entry and limiting customers’ purchasing leverage.
- Major cloud customers are signing multi-year agreements to secure supply, indicating a shift from cyclical spot buys to strategic partnerships and reducing price sensitivity.
See Seagate Technology Full Analysis.
Industry Tailwind
The industry tailwind is STRONG, with CAGR projection of 14.05% (Mordor Intelligence)
Secular Trend: AI Infrastructure Buildout & Cloud Migration
Key Risks: The primary long-term risk is technological substitution from Solid-State Drives (SSDs), which offer superior speed and performance. However, HDDs currently maintain a significant cost-per-terabyte advantage, making them essential for mass data storage in data centers.
Financial Guardrails
Cash Generation: Positive Free Cash Flow
Balance Sheet: As of its fiscal Q2 2026 earnings report, Seagate had a net debt position of approximately $3.45 billion ($4.5B gross debt minus ~$1.05B cash). The company is generating strong free cash flow ($607 million in Q2) and actively reducing debt, mitigating bankruptcy risk.
Not comfortable with options or stock-specific trades? PORTFOLIOS are even better.
The Best Investors Think In Portfolios
Stocks soar and sink – the key is staying invested. A balanced portfolio helps you ride market volatility, boosts gains and reduces single stock risk
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.