Walt Disney Co (NYSE:DIS) shares are suffering one of their biggest down days in ages. The Mouse House is down 2%, slicing below its 50-day moving average for the first time since last November. Are Disney fanboys ringing the register ahead of next Tuesday’s earnings release? Or is DIS stock selling off over concerns over the recent slate of ESPN layoffs?
Perhaps it’s a bit of both. Regardless of the culprit, today’s action warrants a closer look.
Disney stock has had a strong six-month run. Before this week’s bout of profit-taking, Walt Disney shares were up 29% since bottoming near $90 last October. The rising 20-day, 50-day, and 200-day moving averages confirmed the bulls’ dominance.
The uptrend was a sight to behold; textbook in its form, relentless in its rise. Each and every dip boasted the twin S’s — shallow and short-lived. The strongest trends find support along the rising 20-day moving average and DIS stock has been no exception. Just look at how many times buyers stepped up at the 20-day moving average in recent months.
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Except for today, that is.
This weakness marks a notable change in character — one that should temper the enthusiasm of Mickey lovers in the short run.
Use Options to Get Profits From DIS Stock
If you think today is a harbinger of things to come, consider selling the Jun $115/$120 bear call spread for $1.02 credit. The short vertical consists of selling to open the Jun $115 call while buying to open the $120 call. The reward is limited to $1.02 while the risk is capped at $3.98.
The other scenario that I can see becoming attractive is selling a put vertical spread if DIS stock gets a touch more oversold. Currently, you can sell the Jun $105/$100 bull put spread for 39 cents.
If we get enough downside follow-through to where you can sell this put spread for 50 cents, consider pulling the trigger, especially if you want to lean slightly bullish into next week’s earnings release.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
