The price action in Walt Disney Co (NYSE:DIS) has been fascinating to watch in recent months. Though the king of entertainment lost a bit of its magic following a disappointing August earnings release, it’s since gained it all back amid a rousing recovery.
With Star Wars hype hitting max velocity and holiday cheer upon us, now is as good a time as any to consider DIS stock for a trade.
What makes DIS particularly attractive from a technical perspective is the bout of profit-taking hitting the stock this week.
From peak to trough the downturn chopped 6% off of DIS. Though the drop was semi-substantial, it fell short of breaking any major support levels and damaging Disney stock’s uptrend.
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What’s more, the 50-day moving average is still rising, making the path of least resistance higher in the stock.
While pessimists may point to the higher than average volume accompanying the selloff as an ill omen, I wouldn’t be too concerned.
The damage delivered by distribution days in the past for DIS stock has rarely blossomed into a full-fledged crash, and I suspect the current dip will play out in similar fashion.
The DIS stock drop has been accompanied by a slight uptick in implied volatility, making option premiums a bit more attractive to sell here.
Options Plays on DIS Stock
Traders willing to wager the Disney dip gets bought sooner than later should consider selling the Jan $105/$100 put spread for 55 cents or better.
The bull put spread is well positioned to profit as long as the Disney stock price remains above $105 for the next month. The max reward is limited to the initial 55 cents and will be pocketed if the puts expire out-of-the-money.
The max risk is limited to the distance between strikes minus the net credit, or $4.45, and will be lost if DIS stock tumbles below $100 by expiration.
As of this writing, Tyler Craig owned bull put spreads on DIS.
