Shares of Disney got whiggidy whacked the day after their fiscal Q1 earnings on Feb 9th, closing down nearly 4% at a new 52 week low. Investors remain more concerned with subscriber losses at ESPN than relieved at the stunning performance of the Star Wars movie.
The timing of the stock’s sell off was met with what was a near term sentiment low in the broad market on Feb 10th and the stock had rallied more than 10% from the those lows, now running into a bit of technical resistance around $95, which also happens to be the stock’s close on August 24th:
There was a large directional options trade in the stock today when it was trading around $95.50. A trader bought to open 15,000 April 90/85 put spreads paying 85 cents, or $1.27 million in premium. This trade breaks-even at $89.15, down about 6.5% from the trading level, and offers potential gains of up to $6.2 million if the stock is between $89.15 and $85, with the max gain of $4.15 at $85 or lower, down about 11%.
There are a couple things that are interesting to me about the choice of expiration and the strikes. First, April does not catch their next earnings event which should come in early May, and there are no scheduled events prior. Second, the long strike of the put spread is at what was once key technical support at $90, the level the stock bounced from in August and then again in January.
I would also add that while options prices are elevated for most large cap stocks, DIS short dated options have come in hard with the recent rally, making put protection at important support levels attractive for a long holder, as 30 day at the money implied volatility of about 23% is essentially in line with the one year average:
The five year chart below shows the very steady uptrend until the stock crashed in August. The double top failure is nasty, and it may take years for the stock to make a new high. The stock’s break of the long term trend is significant in my mind, and I was kind of hoping for a re-test of the uptrend and a failure there, closer to $100 as a good short entry. It didn’t come and I suspect the stock will once again have an 8 handle in the coming weeks:
