DIS Analysis

Update 12/11/2015: I exited DIS after the current options reach half of its potential profit. It was a roll within the position, and by rolling I nearly quadrupled my profit. 

Shares declined by 3.9% over 26 days, or a -54% annual rate. The options position produced a 51.8% yield on debit for a +727% annual rate

Here's a chart of the position throughout its lifespan.

DIS	bear call spread
11/5/2015	1.68	enter DEC
12/1/2015	-1.38	exit DEC
12/4/2015	1.72	enter JAN
12/11/2015	-0.86	exit JAN
	-----------------
Net:	1.16

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Update 12/1/2015: With DIS teetering on the edge of unprofitability, I have rolled it forward from the DEC options series to the JAN series, collecting additional premium and giving my bearish assessment of the chart more time to work.

Here's a table of the roll, projecting that I'll exit with half of potential profit of the JAN options:

DIS	roll, same strike
11/5/2015	1.68	112.73	enter DEC
12/1/2015	-1.38	114.27	exit DEC
12/1/2015	1.72	114.27	enter JAN
TBD	0.86	TBD	exit JAN
	-----------------
Net:	2.88

---

The Walt Disney Co. (DIS), headquartered in Burbank, California, publishes earnings on Tuesday after the closing bell.

[DIS in Wikipedia]

DIS

I shall use the DEC series of options, which trades for the last time 43 days hence, on Dec. 18.

Ranges

Implied volatility stands at 33%, which is 2.1 times the VIX, a measure of volatility of the S&P 500 index. DIS’s volatility stands in the 56th percentile of its annual range.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	125.12	137.85	130.87
Lower	99.96	86.93	93.91
Gain/loss	11.3%	22.7%

Implied volatility 1 and 2 standard deviations; maximum earns move
The Trade

Analysts scored by Zacks on balance anticipate a negative earnings surprise on DIS and I shall construct a bear play.

Bear call spread, short the $115 calls and long the $120 calls,
sold for a credit and expiring Dec. 19.
Probability of expiring out-of-the-money

DEC	Strike	OTM
	115	60.3%

The premium is $1.66, which is 32% of the width of the position’s wing. The stock at the time of entry was priced at $112.73.

The risk/reward ratio is 2.1:1.

The short strike is $2.27 above the market price. The biggest immediate move after each of the past four earnings announcements was $18.48, and the average was $6.97.

Decision for My Account

I've opened a position on DIS as described above.

-- Tim Bovee, Portland, Oregon, Nov. 5, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.