Why Options Traders Are Loading Up on Pure Storage

In the stock market, price action tells you history, but volume often predicts the future. For investors watching the data infrastructure sector, a specific technical signal recently flashed, demanding a closer look. Pure Storage, Inc. (NYSE: PSTG) recently appeared on the Unusual Call Options list with a noticable 191% increase in volume.

To understand the significance of this, it is essential to understand what a call option actually represents. A call option is a financial contract that gives an investor the right to buy a stock at a specific price in the future. It is a leveraged bet. It allows traders to control a large amount of stock with less capital up front.

When volume for these contracts explodes, especially during a period where the stock price itself is falling, it creates a divergence. This divergence is often a footprint of institutional investors, also known as smart money.

Retail investors typically sell when they see a stock chart dropping. In contrast, institutions often use these drops to accumulate positions if they believe the fundamentals remain strong. Over the last 30 days, Pure Storage stock has pulled back approximately 11-12%, trading in the high $60s to mid $70s range.

The surge in call options suggests that large traders view this sell-off as a buying opportunity. They appear to be betting that the market has mispriced the company’s role in the next phase of the artificial intelligence (AI) revolution. The timing is notable, as it aligns with a growing consensus that the hardware powering AI is about to undergo a significant structural change.

Watts per Terabyte: The Only Metric That Matters

While the financial news cycle focuses on the expensive processors used to train AI, a quieter crisis is emerging in the data center. AI models, such as those powering ChatGPT, Alphabet's (NASDAQ: GOOGL) Gemini, or Meta Platforms’ (NASDAQ: META) Llama, are subject to a principle known as data gravity. They require massive datasets to be fed into processors in real time and as quickly as possible.

For decades, the standard solution for storing this data was the Hard Disk Drive (HDD). These are mechanical devices with spinning magnetic platters. They are cheap to buy, but they are slow, heavy, and hot, and those three factors make them energy-intensive. In 2026, the primary constraint for building new AI factories is not land or chips; it is electricity. Data centers are running out of power, and data center owners are looking for ways to optimize the power they are currently utilizing.

This reality has turned energy efficiency into a competitive weapon. This is where Pure Storage holds a distinct advantage with its proprietary DirectFlash technology. To understand this moat, you have to look at how data storage actually works.

Competitors such as Dell Technologies (NYSE: DELL) and Hewlett Packard Enterprise (NYSE: HPE) often build storage arrays using standard, off-the-shelf Solid State Drives (SSDs). An SSD is essentially a middleman. It has its own internal computer chip that manages data flow and performs maintenance tasks such as garbage collection. When you have thousands of these drives in a rack, you have thousands of tiny computers wasting electricity on redundant tasks.

Pure Storage takes a different approach. Their software speaks directly to the raw flash memory modules, removing the middleman entirely. The system manages the data globally rather than locally on each drive.

By eliminating these inefficiencies, Pure arrays can store more data in less space while using significantly less electricity. The metric that matters in 2026 is Watts per Terabyte. When a hyperscale data center reaches its power limit, it has two choices: build a new power plant (which takes years) or replace inefficient hardware with efficient hardware. The bullish options activity suggests the market believes the sector operators are leaning toward the latter.

Cracking the Code: The End of the Hardware Cycle

Technology is only valuable if customers buy it. For years, the bear case against Pure Storage was that it couldn't crack the hyperscaler market. Historically, these companies operated on a Build vs. Buy philosophy. They preferred to buy cheap, raw components and build their own custom storage systems to save money. They generally avoided premium vendors like Pure Storage.

That narrative has officially changed.

Pure Storage has confirmed design wins with multiple hyperscalers and continues to build upon its relationship with Meta Platforms. As of early 2026, this relationship has moved from a testing phase into active deployment. This is a watershed moment for the industry. It proves that Pure’s DirectFlash technology is now so efficient that it is cheaper for a tech giant to buy from Pure than to build it themselves.

This operational success is beginning to show up in the financial data. In its most recent report for their third quarter of fiscal year 2026, the company delivered strong results:

• Revenue: $964.5 million, representing a 16% increase year-over-year.
• Profitability: A record non-GAAP operating margin of 20.3%.

Perhaps most importantly, the company is fundamentally changing how it sells its products through its Evergreen subscription model. In the past, companies purchased storage boxes, used them for five years, then discarded them and bought new ones. This created volatile revenue cycles.

Pure’s Evergreen model works more like a utility. Customers subscribe to the service, and Pure upgrades the controllers non-disruptively over time. This transition to Storage-as-a-Service (STaaS) creates recurring revenue. Wall Street generally awards higher valuations to companies with recurring revenue because it is predictable and stable. This shift helps justify the premium price tag the stock currently commands.

The Flash Revolution: Is It Time to Follow the Flow?

Despite the bullish data, investors must remain objective about the risks involved. Pure Storage trades at a premium valuation. Its price-to-earnings ratio (P/E) is significantly higher than that of legacy hardware peers. When a stock is priced for perfection, any slowdown in growth can lead to volatility.

Additionally, recent insider selling by executives has created negative headlines. While this selling is often part of pre-scheduled automated trading plans for liquidity, it can spook retail investors who interpret it as a lack of confidence.

However, the company has mechanisms in place to mitigate these concerns. Management has authorized a $400 million share buyback program. This is a direct signal that the Board of Directors believes the stock is undervalued at current levels. By repurchasing shares, they reduce the supply of stock available on the open market, which can help support the price per share.

The 191% spike in call options suggests that smart money is looking past the short-term noise and insider headlines. They are focusing on the macro picture. The transition from spinning hard drives to all-flash data centers is inevitable. It is not a matter of if, but when.

As AI models grow larger and power grids become more strained, the company that can store the most data with the least amount of electricity wins. Right now, the options market is betting that the company is Pure Storage. For investors, the recent pullback may represent one of the last opportunities to enter before the revenue from these massive hyperscale deals fully hits Pure Storage’s balance sheet.

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The article "Why Options Traders Are Loading Up on Pure Storage" first appeared on MarketBeat.