Though the broader market continues plumbing the depths, some stocks are finally attracting buyers. Count Walt Disney Co (DIS) among the stalwarts.
The epic sell-the-news plunge following the release of Star Wars: The Force Awakens looks to have run its course, as the bulls have materialized in force over the past two trading sessions.
Tactical traders looking for a bargain or two amid the rubble should take a good look at DIS stock here. For starters, the magical century mark has been a battleground for Disney stock price in the past. It’s the zone where buyers stepped up en mass to stem both the August and September declines.
The action in DIS over the past two trading session is revealing the bulls’ unwillingness to let the $100 level go without a fight, as both down gaps were quickly bought up.
At the time of this writing DIS stock was up as much as 50 basis points, making it one of the only green stocks on the board.
That’s relative strength, kids.
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While the uptrend in the Disney stock price is undoubtedly broken, that doesn’t mean a hearty countertrend rebound isn’t in the cards. At least a return to the declining 20-day moving average, which sits 7% higher, isn’t out of the question.
How to Trade DIS Stock
If you’re eyeing the bounce play in DIS with interest, but want to hedge your bets I have just the play for you: Bull put spreads.
Just in case Disney stumbles a bit more before a bona fide retracement takes root, we can structure an option trade to profit as long as DIS remains above $90.
Sell the Feb $90/$85 put spread for 50 cents or better. The max reward is limited to the initial 50 cents and will be pocketed if DIS stock remains above $90 for the next month.
The max risk is limited to the distance between strikes minus the net credit, or $4.50, and will be lost if Disney stock price tumbles below $85 by expiration. To reduce the potential loss consider exiting if DIS falls to the short strike price at $90.
Disney reports earnings in early February, and with the stock already brought so low I wouldn’t be surprised to see a run-up heading into the announcement.
At the time of this writing, Tyler Craig owned bull put spreads in DIS.
