Media giant Walt Disney Co (NYSE:DIS) is among the headliners in next week’s round of corporate earnings reports. Disney stock is in the process of rebounding from oversold levels and technical support near $95. However, DIS is staring up at several levels of overhead technical resistance. The question is: Will earnings help propel the shares higher, or will cord-cutting once again move Disney’s cheese?
Starting with a look at Wall Street’s expectations, Disney is seen posting a Q3 profit of $1.61 per share, up 11% year-over-year. Revenue is expected to rise 8% to $14.15 billion on the quarter. According to Earnings Whispers, expectations may be a bit higher, with a whisper number $1.65 per share.
Speaking of expectations and sentiment, the brokerage community is far from a fan of the Mouse’s house. In fact, Zack’s data reveals that only eight of the 24 analysts following Disney stock rate the shares a “buy” or better. What’s more, the 12-month consensus price target of $109.15 represents a meager premium of just 13.6% to DIS’ close yesterday.
Click to Enlarge However, when we turn to the speculative options pits, we find that calls are growing rapidly popular on DIS stock.
Currently, the August put/call open interest ratio arrives at 0.71, with calls easily outnumbering puts among near-term options. Zeroing in on the weekly Aug 11 series, though, reveals a put/call OI ratio of 0.32, with calls more than tripling puts among options most affected by next week’s quarterly report.
Overall, weekly Aug 11 series implieds are pricing in a potential post earnings move of about 3.5%. This places the upper bound near $99.42, while the lower bound lies near $92.58. There is plenty of rally room for Disney stock before resistance kicks in at $100, while a decline could send the stock below key support near $93.
2 Trades for Disney Stock
Call Spread:
Disney stock has had some trouble of late, the shares appear ready to turn things around … at least from a short-term perspective. Traders looking to bet alongside the options pits (and against the brokerage community) might want to consider an Aug $97.50/$100 call spread. At last check, this spread was offered at 70 cents, or $70 per pair of contracts. Breakeven lies at $98.20, while a maximum profit of $1.80, or $180 per pair of contracts, is possible if DIS closes at or above $100 when August options expire.
Put Sell: Premium selling may be more attractive to those traders worried that Disney stock may have a few hiccups in next week’s quarterly report. Along those lines, a weekly Aug 11 series $90 put sell may be what you are looking for. At last check, the weekly August $90 put was bid at 32 cents, or $32 per contract.
On the upside, you keep the premium received as long as Disney stock closes above $90 when August options expire at the end of next week. On the downside, should Disney stock trade below $90 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $90 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
