Wall Street has a love-hate relationship with Walt Disney Co (NYSE:DIS) stock, but this wasn’t always the case. Prior to 2015, DIS stock was on a tear as it rally 175% between 2011 and 2015. This year, the stock is down 4% but in a market that can’t quit rallying, this is a disappointment.
Technically DIS has showed promise, but for a stock that has so many assets, I feel that it has been too choppy. In the last two years, the stock has seen several +/-25% moves mostly driven by headlines that swayed consensus not fundamentals.
Click to Enlarge The most recent of those rallies ended in May of this year.
Now Disney stock is trying to break out of this descending channel. I booked my last profits in it towards the end of May. I saw it trading in a very tight box and thought that a move would be coming. Not knowing in which direction the move would be, I booked my profits.
Well the stock fell sharply on Sept. 7 and now it’s inching back from the losses. Today I want to bet that the huge dip created a tradable bottom that I can monetize for the next few months.
This is a strategy I use with stocks that have value. DIS has assets and most are household names across the globe. This is tangible value I can leverage to create income with no out of pocket risk.
The fundamentals in DIS stock have been somewhat the same, yet investors flock in and out of it as if it was a biotech stock.
Only recently that they’ve announced somewhat of a game changer with their intent to sever from Netflix, Inc. (NASDAQ:NFLX) and create their own competitive streaming platform. Other than that, it has been business as usual with great movie performances and oversold theme parks.
There could be short-term turmoil as Wall Street tries to evaluate the streaming model for Disney, but I am confident that traders won’t ignore the value if the stock falls out of favor again in the next few months. And therein lies my opportunity.
DIS Stock Trade Idea
The Bet: Sell the DIS Jan $90 put to open the risk. This is a bullish trade for which I collect $1 to open. It has 85% theoretical odds of winning. If the price falls below my strike then I own the shares and would accumulate losses below $89.
Selling naked puts in a three-digit stock can be daunting. I can mitigate most of the risk by selling spreads instead. There I have less dollars at risk.
The Alternate Bet: Sell DIS Jan $90/$87.50 bull put spread which has about the same chances of winning. If so, it would yield 15% on risk.
Compare this with needing to risk $100 per share at face value to buy Disney stock. Then, without any room for error, you need a rally to profit.
Investing in the stock market can be dangerous, so I never risk more than I can afford to lose.
Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.
