To suggest that shares of Disney (DIS) bounced off a key technical support level yesterday, just above $90 is an understatement, yielding a 4% reversal from those levels. The one year chart of DIS shows just how important $90 has been, as it was the bounce level early last year which has served as a pivot for a breakout to new highs, also was tested briefly on August 24th, and then again yesterday:
While $90 seems like a back-up the truck level for those looking to play for a sustained bounce, possibly to $100, I would note that a failure here, and a break of $90 could result in a re-test of longer term support in the low $80s, having broken the long term uptrend that has been in place since late 2011:
With the stock’s follow through this morning, it appears that one trader either monetized a hedge, or closed and outright bearish position. When the stock was $93, a trader sold 2500 of the DIS Jan 29th weekly 94 puts at $2.25.
The company does not report Q4 results until Feb 9th, so with short dated options prices where they are (hint Up!), this trader might look to roll this view (on a bounce) to capture earnings, and once vol has settled a bit. The one year chart below of 30 day at the money implied volatility (options prices) shows prices well above the last 4 earnings reports, and not far below where they got in late August:
Jan 29th weekly IV is about 30 vol right now. If the stock was to stabilize Feb weekly or regular vol capturing earnings is likely to be the same or even lower. That would set up for a very nice roll, especially if the stock is slightly higher. The major risk with legging into a roll for earnings (assuming the trader wants that position for earnings) is the risk that stock heads lower over the next few weeks. In that case the missed opportunity for the roll would cost a lot, no matter the vol.