Covering Disney Stock to Generate Income

There's still money to be made in this market

We survived another Monday in the “new normal” on Wall Street. As Ken Trester noted in his trade recommendation yesterday, the market was already bouncing back and forth before the open. And that action continued throughout the day.

The Federal Reserve’s pledge to support the economy with no upper limit to its asset purchases pushed stocks higher, but when the Senate Republicans and Democrats failed to pass their $1.6 trillion bailout package for a second time, things turned sour.

We still believe we’re on the verge of getting some additional relief from the U.S. government, but in the meantime, we’re looking to generate a little relief of our own in the Strategic Trader portfolio by selling a covered call against our shares of The Walt Disney Company (NYSE:DIS).

Postponing Big Releases

DIS has been falling for the past month. Theme parks and movie theaters around the world are closing, which has left investors wondering how big of a hit the company’s financials are going to take.

The company has already had to postpone the release of Mulan, its latest live action adaptation of one of its animated films, and Black Widow, the latest Marvel Cinematic Universe film.

Both of those are a big hit to the company, but DIS’s new streaming service is getting some publicity thanks to the early release of Frozen 2 and Star Wars: The Rise of Skywalker for streaming. While some have speculated this is just a distraction from the bad news, we are taking a more positive view.

Disney+ has a lot of competition, and with kids out of school for the foreseeable future, these early releases are a reminder of what the service offers to families.

These small positives won’t boost Disney to its early 2020 highs, but they may have helped the stock find support.

Counting on Resistance

DIS has found some support above $80 during the past week of trading, which gives us a great opportunity to generate some income on our shares with a covered call.

Daily Chart of Walt Disney Company (DIS) from Nov. 2019 to Present

Daily Chart of The Walt Disney Company (DIS) — Chart Source: TradingView

We originally purchased DIS shares for $150 each. We don’t want to have them called away for a loss, but we do want to collect a decent premium with a covered call.

We’re not sure exactly how the market is going to react once Congress finally passes its next stimulus package, but we think there will be some buying. Depending on what the final stimulus package looks like, there could be a lot of buying.

While DIS could potentially challenge resistance at $100 if buying picks up, we don’t believe it will be able to break resistance at $107.

As you can see on the chart above, the $107 level held as support in March 2019 when the stock formed an inverted “head-and-shoulders” bullish continuation pattern. That makes it a strong candidate for resistance going forward.

If you, like us, have been holding shares of DIS, a covered call with a strike set at $110 could be an excellent way to generate some income in the short term. Be sure to select an expiration that doesn’t obligate you in the trade for too long.

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of, as well as the co-editors of Strategic Trader.

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