Event: Disney (DIS) will report their fiscal Q1 results tomorrow after the close. The options market is implying about a 5.5% one day post earnings move, which is rich to the 4.75% 4 qtr average move, and the 10 year average of about move 3.3%. With the stock at $90, the Feb 12th weekly 90 straddle (the call premium + the put premium) is offered at $5.70, if you bought that, and thus the implied move, you would need a move above $95.70, or below $84.30 to break-even on Friday’s close. The one day implied move is a little less than the weekly.
Options volume is running a bit hot today, at 1.5x average daily volume. There was one trade that caught my eye when the stock was $91.50 shortly after the open, a trader sold to close 1,000 Feb 12th weekly 93 puts at $3.93 and bought to open 1,000 of the Feb 12th weekly 91.50 puts for $3.22. These puts now break-even at $86.78, a level the stock has not traded at since October of 2014.
The one year chart is fairly fascinating, the low for 2015 was put in early February at $90, prior to the stock’s 35% rally to its early April highs. During the market’s meltdown in August the stock made an intra-day matched low at $90, before once again bouncing off of that nice round number and rallying 34% into early November before round-tripping the entire move back to $90:[caption id="attachment_61230" align="aligncenter" width="600"] DIS 1yr chart from Bloomberg[/caption]
Taking a longer term view from DIS’s financial crisis lows, the stock has clearly broken trend, possibly having made an epic double top near $120:[caption id="attachment_61231" align="aligncenter" width="600"] DIS 8 year chart from Bloomberg[/caption]
I would add that options prices in DIS are once again approaching levels not seen since late August and the stock’s grind lower over the last few months, with the stock back at 52 week lows, makes today’s prices that much worse than August as that was a full on panic:[caption id="attachment_61232" align="aligncenter" width="600"] From Bloomberg[/caption]
Longs might consider call sales against stock, and those looking to express a directional view might consider short premium trades. For instance if you thought DIS was going to meaningfully break below the long term uptrend after tomorrow’s results, you might consider selling a call spread to finance the purchase of a put spread to help offset expected vol crush after earnings.