Trade of the Day: Walt Disney Co (DIS)

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We’re opening a new bearish trade on Walt Disney Co (NYSE:DIS). There’s a heated debate going on right now about DIS’s plans to launch its own streaming-media service next year and whether it will be able to compete with Netflix (NASDAQ:NFLX). While we tend to think DIS’s streaming-media service is going to be a huge winner for the company in the future, we don’t believe most traders are willing to put their money into DIS stock just yet to take advantage of the revenue that new service could offer.

Investors are concerned with the company’s struggles to keep ESPN as dominant as it once was — with NFL football failing to generate as much viewer and advertising revenue growth potential as it has in the past and more and more customers cutting the cord on cable — and the potential of a short-term market disruption.

From a technical perspective, the stock recently completed a “head-and-shoulders” bearish reversal pattern when it broke below the pattern’s “neckline” on Sept. 4. It then successfully re-tested that support level to see if it would hold as a new resistance level on Sept. 10.

With the stock bouncing slightly higher yesterday, we think it is a great opportunity to enter a bearish trade on the company without having to pay quite as much for our put options as we would have had to yesterday. Based on the height of the head-and-shoulders pattern, we have an initial price target of $108, but we wouldn’t be surprised to see DIS slide down to support at $106 if the market cools off a bit.

‘Buy to open’ the DIS October 19th $110 Put (DIS181019P00110000) for a new maximum price of $2.40.

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