Call Options Or Put Options On Walt Disney (DIS)?
Walt Disney (DIS) is one of the world’s leading entertainment companies. The company owns television networks, produces movies, operates theme parks, and much more. Disney is one of the most recognizable brand names on the planet.
DIS shares are trading at $67.05 prior to the company’s earnings release. The shares are 46% above the 52-week low of $45.83 and are just 1% below the 52-week high of $67.89.
Is this an opportunity to buy call options on DIS after the company’s profits came in better than expected? Or should you buy put options on DIS due to the decline in the studio division’s operating income?
The bulls make a convincing argument…
DIS continues to churn out decent numbers quarter after quarter. The stock’s been trending up since last November and it nearing its 52-week high.
In last night’s earnings release, the company beat EPS expectations by $0.02 and increased profits 1% over the same period last year. Revenues from ESPN helped the company increase operating income in their media networks division by 8%. Meanwhile, the theme parks division’s operating income increase by 9% as more people visited the iconic parks.
Those gains are a good sign consumers are spending more than in previous quarters. And of course, that bodes well for retail-oriented Disney.
But the bears have a compelling case as well…
The one major segment of DIS to disappoint was the company’s movie studio division. The summer didn’t have a huge hit like last year’s “Avengers” and “Lone Ranger” was a huge box office bomb.
In fact, DIS expects a loss of $160 to $190 million next quarter from the “Long Ranger” fiasco. The poor results bought down the studio division’s operating income by 36% from the prior year.
When a company spends as much on blockbuster movies as Disney, it can’t afford to have box office busts year after year. (Last year it was “John Carter”, the year before it was “Mars Needs Moms”.)
So are the better than expected profits from the quarter enough to overcome the big decline in the studio division’s operating income?
If you think the bulls are right, take a look at buying the DIS October $67.50 calls for around $2.00.
If you think the bears are right, take a look at buying the DIS October $65.00 puts for around $2.00.
Yours in Profit,
Gordon Lewis
Category: Call Or Put Options?
