A well-positioned Walt Disney (NYSE:DIS) is finding key support from a quiet (or mouse-like?) situation on the price chart that could turn DIS stock back into a bull. But for investors who want to guard against always lurking villains, a Disney collar strategy looks like a real crowd-pleaser. Let me explain.
The business environment for entertainment giant Disney has been challenging the past couple years. The surge in streaming media and changing consumer viewing habits have definitely pinched DIS stock.
The most troubling victim has been Disney’s cash cow ESPN network. The business is no longer nearly as dominant as it once was. A slump in NFL viewership and a more ubiquitous trend of households pulling the plug on cable has led to fewer subscription dollars and put a squeeze on DIS stock’s bottom line.
But the House of Mouse and DIS stock are far from dead.
Disney’s other various entertainment tendrils such as its theme parks and studios have motored on. Disney remains the top dog in global theme park attendance. The company’s studios also saw revenue growth of 20% in the most recent quarter. Bottom and top line, storied theatrical franchises under Marvel, Pixar studios, Lucas Films and the likes continue to deliver crowd favorites. And DIS stock may have another ace up its sleeve too.
Next year Disney is set to launch its own streaming media service. Netflix (NASDAQ:NFLX) is, of course, the 800-lb. gorilla in the space. But with the company due to take control of the very popular Hulu streaming service and Disney’s vast film library, it would be foolish to think this venture won’t be anything but successful.
And on the price chart, don’t think for a minute a quiet-as-a-mouse situation is anything other than a bull in disguise.
Walt Disney Stock Monthly Chart
Sometimes — especially when there has been so much talk of Disney losing its dominance — it’s important to take a step back and appreciate the big picture. As that relates to DIS stock, conditions are looking bullish once more.
The House of Mouse has been more or less quiet the past couple years, digesting gains following a solid bullish trend of around four years into its all-time-highs established in the summer of 2015. Now, after a brief and modest breakout to fresh highs, DIS stock has quietly pulled back to test its triangular congestion pattern for support.
Our view is the current pullback offers bullish investors a nice, lower-risk entry into DIS stock. The expectation is shares will stage a more enduring and profitable rally in a sequel of sorts, that might be coined Breakout 2!
DIS Stock Bullish Collar
With DIS stock at $110.25 and taking into account our bullish predisposition for shares, but also the possibility of villainous volatility, I’m favoring the Nov $115 call/$105 put collar for $110.15.
This position fully hedges investor’s Disney shares below $105. With earnings in October and bearish market seasonality, that’s reason enough in our estimation to want an insurance policy like this collar offers.
The big cost with this DIS stock collar is the $115 call, which has been sold to finance the position’s below-the-market, iron-clad protection. Still, the collar can always be adjusted to position and profit from a more enduring trend over time.
Lastly, with an initial profit of $3.85 possible and quarterly dividend of 42 cents in October, a total return of 3.9% is possible in about two months. That’s not a bad way to start in Disney shares or the House of Mouse — and a stock that looks poised to turn back into a bull.
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.
