If we’re to believe that Wednesday’s story with a real-life villain is over, it’s finally time for the show to go on at Walt Disney Co (NYSE:DIS)! But for bullish investors looking to ride DIS stock to great, new heights, safety comes first and the use of a collar strategy is recommended. Let me explain.
Unlike in DIS stock’s lucrative and wildly popular Marvel or Star Wars franchises with their heroes and often bizarre-looking bad guys, Wednesday offered up a real-life version of good versus evil for Disney. And while the entertainment giant didn’t exactly triumph as it does in the movies, a more endearing show for DIS shareholders is free to begin.
To make a long story short, DIS stock traded firmly higher yesterday following a report the company, on behalf of its ABC broadcasting unit, finally cut a deal with BPI in a longstanding defamation suit.
The villain in this case was notorious for having produced the “pink slime” which, much to our chagrin, can still enjoy being called a ground-beef product. It’s the same stuff which in the past plagued McDonald’s Corporation (NYSE:MCD) and some of its “food” offerings.
So while you may not like the sound or the taste of it (or perhaps you do?), the fact of the matter is clarity and better visibility have been offered to Walt Disney fans both off and on the DIS stock price chart.
DIS Stock Weekly Chart
Looking at the weekly view of DIS stock, it’s likely that the bad guys or villainous bears will point to a couple lower highs over the past couple years as evidence of a technical top. And for a period of time, the bears did have some credibility with that argument.
Of late though, and in our assessment of the price chart, the lengthy basing has now established itself as a more bullish corrective pattern poised for a rally and eventually all-time highs in DIS stock.
The bullish take on Disney stock stems from a two-month long decline from April’s third higher-low pivot. With Wednesday’s bullish price action, a bottom and reversal candle are now in place following a successful test of a key support zone defined by a couple Fibonacci levels and prior resistance.
Disney Stock Collar
May the force be with us? In maintaining a bullish optimism, DIS stock is poised to break free from its long imprisonment, but not wanting to be too reliant on intangible hope or a price chart for that matter, hedging shares with a collar is one way to help investors.
Reviewing DIS stock’s options board and with shares at $106.81, the Sep $100 put/$115 call collar combination is priced for $107.35. What does the additional 54 cents of premium over DIS stock entitle a bullish investor too?
On the downside, this position ensures risk through September expiration is contained to 7%, where the $100 put is stationed. The insurance is slightly below the discussed support area on the price chart. As the contract also incorporates an earnings report in early August, I personally like this type of guaranteed provision.
What about the upside? If it’s left unadjusted and DIS stock does rally, profits are also initially capped at 7%. Ultimately, the investor has partially financed the cost of the put by selling the $115 call. It’s a trade-off to be sure, as this collar will under-perform an outright long position in Disney if shares soar higher in spectacular fashion.
Bottom line though, living more of a reality-based program versus indulging too heavily in fantasy is smart business. As well, and knowing future adjustments to the collar can still provide even heftier trending profits over time, the collar looks like the way to suit up without being a hero in DIS stock.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 and StockTwits.
