Tuesday, February 9, 2016

DIS Analysis

Update 2/17/2016: DIS reached 53% of its potential and I exited for a profit. Shares rose by 3.6% over eight days, or a +163% annual rate. The options position produced a 141.5% yield on debit for a +6,502% annual rate.

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.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

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.

Bull put spread, short the $90 puts and long the $87.50 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money
The premium is $0.87, which is 35% of the width of the position’s wings. The price at entry was $91.83

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


Two social media feeds provide notification whenever something new is posted.

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.

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

No comments:

Post a Comment