Big Printin’ Disney (DIS) Calls

by riskreversal November 29, 2016 4:19 pm • Big Printin'

As shares of Disney (DIS) approached the nice round number of $100 in today’s trading, very near a 4 month high, call volume ran hot, more than 5x that of puts, with total volume 1.5x average daily.  

The largest block trade of the day was 10,500 of the Feb 105 calls trading for 88 cents to open when the stock was $99.25 shortly after the open. These calls appear to be bought, despite trading on the bid. One reason for this is that they are only a 22 delta, which to our minds makes an outright sale not particularly attractive. With 30 day at the money implied volatility (the price of options) a tad above the 52 weeks low, and the Feb 105 calls just 2 points above that they look far from an attractive sale… unless

[caption id="attachment_68502" align="aligncenter" width="600"]From Bloomberg From Bloomberg[/caption]

They are an over-write of a long stock position with the idea of adding nearly 1% potential yield (~4% annualized) with a call-away level up 6.7% at $105.88 on Feb expiration. The stock appears to have some technical resistance just above $105:

[caption id="attachment_68501" align="aligncenter" width="600"]DIS 1yr chart from Bloomberg DIS 1yr chart from Bloomberg[/caption]

I guess the point of this post is to highlight the fact that without intimate knowledge of the trade from the initiator, or possibly a broker that handled it, it is nearly impossible to glean anything important from the activity. We use unusual options activity as an input, almost an excuse to take a look at the stock. Either way in this case we find it hard to extract too much negative from this print as if bought, very near 4 month highs it might signal bullishness, and if sold against a long it merely shows and investor using options to add potential yield. Regardless, the stock has been on our radar for a few months as it has done a nice job of putting in a near term bottom at $90, and we will continue to monitor the fundamental situation that appears to be focused on subscriber losses at ESPN despite strong studio performance from Moana and the upcoming Star Wars film Rogue One.