It’s not too late to join the Dark Side and short a still-at-risk Walt Disney Co (DIS) stock chart.
For interested bears, to battle and better protect against still-lurking and sometimes enthusiastic bulls, a bearish put vertical in Disney stock is the investment vehicle of choice.
Part of the dark side — or bearish aspect — of investing has already hit Disney stock over the past couple months. Shares, in fact, are off by roughly 23% since November’s high.
What was behind the initial sell-off? Given storm-trooping algorithms in the market these days, maybe a preemptive “sell-the-news” reaction in front of December’s much ballyhooed and latest Star Wars installment was responsible? Maybe.
The early pressure may have been something simpler too. Disney stock’s historically rich valuation at that point in time was a threat. This strategist noted just that back on Nov. 18 in penning an article on why bears were poised to strike back in shares of Disney.
Yet the correction in shares of DIS may have found its basis in other factors too. For one, a weaker broader market could be blamed for at least some of the damage in DIS stock.
Or how about investor worry over Disney’s increased exposure to China with the company’s Shanghai theme park opening in June?
Given China’s current pickle — not to mention the hefty and very discretionary $400 the average Joe here in the U.S. already shells out for a day at the Magic Kingdom — couldn’t that send some Disney stock bulls to the exits?
There’s also ongoing concern for Disney stock due to Disney’s ESPN unit.
DIS stock diehards don’t want to hear it, but the fact is ESPN has been a cash cow for Disney and “cord cutting” subscribers, as well as Daily Fantasy Sports or DFS litigation in several states are potential headwinds for DIS.
Last but not least, back in November there was a bearish Disney stock chart and one which we’re still concerned with. Let me explain.
DIS Stock Daily Chart
As discussed back in November (yellow highlight), Disney stock’s V-shaped bottom was prone to failure.
Not only is the pattern considered historically weak and unlikely to hold onto stock gains, but in the context of potential drags weighing on Disney investors away from the price chart, a technical reversal in Disney stock seemed all the more reasonable.
It worked.
Currently and in our view, the correction in Disney stock still has another leg lower before a more meaningful bottom is in place.
A more meaningful bottom? The fact is Disney stock could be described as a double-bottom pattern with the flash crash low the first pivot and late January’s low completing the formation.
On the other hand, the double-bottom in shares of DIS stock can be viewed more cautiously as a bearish inverse cup-with-handle. I happen to favor this reading of the pattern at this point in time.
Back in November I wrote about the $75 to $85 area in Disney stock as a longer-term price target. I discussed the testing of key 38% – 50% Fibonacci support dating back to the 2011 low as important as well, as it allowed for a needed compression of hype and Disney’s price multiple.
Not that I couldn’t change my forecast, but given our favored chart pattern and discussed growing bearish headwinds, a scare lower in Disney stock still looks like the price of admission for bulls.
Disney Stock Bear Put Spread
Checking Disney stock’s options board and with Disney stock trading at $93.85, given our views, the March $90 / $82.5 bear put spread for up to $1.50 is attractive.
With earnings in Disney stock in about a week, bears have a catalyst for driving shares potentially lower.
Using March also gives the Disney stock bear several weeks on the calendar to potentially maximize the spread’s profit potential of $6 and return of 400% below $82.50.
Further, because the vertical greatly reduces time decay and volatility risks and potential hazards with a straight long put position, the trader is in stronger position to realize a profit on a move lower in Disney stock.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
