Disney Options (DIS): Unusual Trading Activity

| July 30, 2012 | 0 Comments

DIS OptionsOptions in the company for “all ages,” Disney (DIS), experienced a large amount of trading activity late Friday afternoon.

Disney is an interesting company right now. 

You see, two important events are exerting a big impact on this popular name.

First, DIS just set a new 52-week high on Friday of $50.54 a share.  And second, the company is scheduled to report second quarter earnings on August 7, 2012 after the bell.

So, given these two big data points… what are option traders doing?

One large trader apparently thinks DIS may have put in a short term top at this $50 level.  But it looks like he’s still bullish on the long-term outlook for the shares.

I’ll explain why I think so in just a moment… 

First, it’s important to note something important about the stock’s recent trading history.   While Disney stock has moved about 3.5% up or down on earnings historically, it has moved higher after the last few quarterly earnings reports.

So, with Disney at a key juncture, option traders are looking at higher than normal volatility and selling Disney calls.  Remember, high volatility drives up option prices and makes selling options more attractive.

Getting back to the trade…

On Friday afternoon, most of the option activity was centered around the DIS September $48 strike calls for a price of $2.90 a piece.  These options were traded 16,000 times.

To figure out what was going on, I had to look a little deeper into this trade. 

You see, option traders don’t usually speculate with such high priced options.  And there was no offsetting option position to indicate an attempt to lower the $2.90 premium.

However, after doing a little research, I realized what this trader had done.  At the same time he sold the Disney calls, he simultaneously purchased 16,000 shares of Disney stock at $49.75.

Simply put… he sold covered calls against a new long stock position in DIS.

And with short term support at $48 a share, I think selling this strike is a great idea.

Now, what else is driving this trade?

Clearly, the trader also has a bullish long-term view on Disney.

And for good reason…

As you know, Disney owns the rights to some of the most famous characters ever created, including Mickey Mouse and Winnie the Pooh.  These characters and many others are featured in several Disney theme parks around the world.  

In addition, the company has extensive media holdings including ABC, The Disney Channel, ESPN, and a 42% stake in A&E.

And, while making movies is a hit-or-miss business, Disney’s large library of animated content with popular brands and characters greatly reduces the stock’s volatility.

Bottom line…

Disney is a well diversified, low-risk stock that I wouldn’t mind owning with a small amount of protective calls against it. 

And you shouldn’t either.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.