Disney (DIS) FQ4 Earnings Ideas

by riskreversal November 10, 2016 3:01 pm • Trade Ideas

Earlier we took a quick look at the trade set-up into Disney’s (DIS) fQ4 results:

The options market is implying about a 3% one move tomorrow in either direction, which is a tad rich to the average move over the last 4 quarters, and shy of the 10 year average of about 3.4%. The company is expected to report eps that will be negative year over year, the first such instance since Q1 2013, resulting from weak results in their cable networks division which saw tough competition in the quarter from the Olympics, weak ratings for ESPN’s SportsCenter, MLB & NFL. Fiscal Q1 will face a difficult comparison with the expected second yoy eps decline as last year the company had the benefit of the reboot of the Star Wars franchise.  

On a beat and raise we identified technical resistance at the nice round number of $100 as an obvious target for a short term bounce. But If I thought the stock had some legs after a beat and raise I might allow for more time for the stock to fill in the May earnings gap back towards $105:

[caption id="attachment_68040" align="aligncenter" width="600"]From Bloomberg From Bloomberg[/caption]

Here are two defined risk trade ideas for those who think DIS has bottomed, that the stock will bounce after results and guidance that are not as bad as expected, and look to target a reasonable short term bounce, and one that allows for more time and a more sustained rally:

Short term:

DIS ($95.75) Buy the November 18th  96 / 100/ 104 call Butterfly for $1
  • Buy 1 Nov 96 call for 1.45
  • Sell 2 Nov 100 calls at 25 each or 50 cents total
  • Buy 1 Nov 104 call for 5 cents

Break-Even on Nov 18th expiration:

Profits: up to 3 between 97 and 103 with max gain of 3 at 100

Losses: up to 1 between 96 and 97 & between 103 and 104 with max loss of 1 below 96 and above 104

Rationale: We looked to risk as little as possible to make would could be a fairly binary bet, risk 1 to possibly make 3 in a week.

As usual with earnings trade ideas we will offer our usual disclaimer, you need to get a lot of things right to just break-even for long premium catalyst driven trades, direction, magnitude of the move and timing.


Intermediate term:

DIS ($95.75) Buy the January 97.50 / 105 call spread for $1.60
  • Buy 1 Jan 97.50 call for 1.90
  • Sell 1 Jan 105 calls at 30 cents

Break-Even on Jan Expiration:

Profits: between 99.10 and 105 of up to 5.90, max gain above 105

Losses: up to 1.60 between 97.50 and 99.10, with max loss of 1.60 below 97.50.

Rationale: this trade breaks-even 3.5% in line with the implied earnings move and risks less than 2% to play for a sustained rally back to the May earnings gap.