Don’t DIS This Trade

Walt Disney (DIS) reported solid earnings results after the bell on Thursday that beat analyst expectations on the top and bottom lines. Perhaps as important, subscriber growth to the Disney+ streaming service also beat estimates. And revenue from the company’s parks swung to a profit. Analysts greeted the news with ratings reiterations mixed with a few small target price increases. Perhaps the looming unknown effects of the Delta variant is keeping a lid on enthusiasm.

If
you agree that DIS will stay above its 200-day moving average, consider the
following trade that relies on the stock remaining above 175 through expiration
in five weeks.

The
stock quickly popped 5% on the news to hit a three-month high but retreated in
Friday’s trading to close 1% higher. The shares have spent the past three
months trading sideways after pulling back from an all-time high hit in early
March. The 200-day moving average has recently been a major bastion of support.
In fact, the last time DIS closed below this trendline was nearly 10 months
ago. The 200-day sits just below the 175 level, which is the strike for the
short put of our recommended credit spread. Thus, this trade is relying more on
this support holding than DIS going on bullish run.

Buy
to Open DIS 17Sep 170 put (DIS210917P170)
Sell to Open DIS 17Sep
175 put (DIS210917P175) for a credit of $1.05 (selling a vertical)

This
credit is $0.04 less than the mid-point
of the option spread when DIS was trading at $181. Unless the stock rallies
quickly from here, you should be able to get close to this amount.

Your
commission on this trade will be only $1.30 per spread.  Each spread would then yield $103.70. This
trade reduces your buying power by $500 and makes your net investment $396.30
($500 – $103.70).  If DIS closes above
$175 on September 17, both options will expire worthless
and your return on the spread would be 26% ($103.70 / $396.30).

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seventy two  ⁄    =  eight