The mass media and entertainment company The Walt Disney Co. (DIS), headquartered in Burbank, California, publishes earnings on Tuesday after the closing bell.
[DIS in Wikipedia]
I shall use the MAR series of options, which trades for the last time 38 days hence, on March 18.
Implied volatility stands at 41%, which is 1.5 times the VIX, a measure of volatility of the S&P 500 index. DIS’s volatility stands at the peak of its most recent range. The share price used for analysis was $90.21.
|Week||SD1 68.2%||SD2 95%||Earns|
DIS has been in a downtrend since Aug. 4, 2015, with the most recent leg down having begun on Nov. 23, 2015 after shares recovered nearly all of their prior decline. Shares are now trading at their lowest low since the decline began.
Two out of the last four earnings announcements have been immediately followed by price increases.
Brokerages in aggregate give DIS a negative 13% enthusiasm index, with 39% of 23 analysts issuing strong-buy recommendations.
Changes in analyst assessments, analyzed by Zacks Investment Research, suggest a good chance of an upside earnings surprised. Zacks gives their method a 70% chance of being right in upside forecasts.
The earnings surprise forecast is at odds with the analysts and, indeed, at odds with the chart. But that's the nature of a surprise, after all.
I've have good fortune with the Zacks earnings surprise prediction and shall structure the trade using a bullish strategy.
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money
The risk/reward ratio is 1.9:1.
The strike price stands $1.83 below the entry price. The biggest immediate move after each of the past four earnings announcements was $18.48, and the average was $7.14. After eliminating the maximum and minimum post-earnings movements, the core tendency is $4.93.
Decision for My Account
I have entered a position on DIS as described above.
-- Tim Bovee, Portland, Oregon, Feb. !#, 2016
Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.
Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading.
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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.
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