Call Options Or Put Options On Walt Disney (DIS)?

| June 13, 2012 | 0 Comments

DIS OptionsWalt Disney (DIS) is the largest entertainment and media company in the world.

The company’s involved in just about everything fun.  They have their hand in all types of media including movies, television, radio, print, video games, and the internet.  They also have theme parks, resorts, cruise ships, and sports complexes.  And they even have a consumer products segment that operates retail stores and licenses Disney characters to manufacturers, retailers, show promoters, and publishers.

And business is booming…

DIS currently trades for $46.38 per share.  It’s at a 52-week high.  And it’s up 67% from the 52-week low of $28.19.

Is this an opportunity to buy call options on DIS as it races higher?   Or is this the time to buy put options on DIS as it pulls back from its highs?

The bulls make a convincing argument…

DIS is hitting on all cylinders.

The company has a remarkable history of revenue and earnings growth to go along with a rock solid balance sheet.

Earnings per share have been trending higher over the past two years.  And last quarter, EPS increased a whopping 28% year-over-year while net income shot up 21%.

The impressive results are being driven by strong performances of cable and network television ad sales on ESPN, ABC, Disney Channel, and ABC Family.

What’s more, attendance and guest spending at Disney theme parks came in better than expected last quarter.

And to top it off, the release of The Avengers movie should provide a boost to the studio and consumer products divisions.

Clearly, DIS has multiple catalysts for increasing revenue and earnings per share going forward.  And that should fuel even more upside in DIS.

But the bears have a compelling case as well… 

Don’t forget, media companies like DIS are very vulnerable to an economic slowdown.  They need consumers to spend money.  And if the economy sputters, consumer spending will slow as well.

DIS’s media networks provide 46% of the company’s revenue.  If the global economy takes a hit from Europe or slows, advertisers will certainly dial back the amount of money they’re spending on advertising.

And their theme parks have benefited from major expansions over the last few years.  As the appeal of these new parks and themed areas wears off, attendance and guest spending could fall short of expectations.

Here’s the bottom line…

It’s taken nearly perfect execution of Disney’s business plan over the last two years for the stock to reach this price.  But if economic growth takes a hit, DIS will likely see their revenue and earnings growth fall short of expectations.  And that’s a recipe for a lower stock price.

If you think the bulls are right, take a look at buying the DIS October 2012 $49 Call for around $1.60. 

If you think the bears are right, take a look at buying the DIS October 2012 $43 Put for around $1.62.

Good Investing,

Corey Williams

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Category: Call Or Put Options?

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.