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Calls were the options of choice on The Walt Disney Company (NYSE:DIS - 54.16) on Monday, with short-term speculators setting their optimistic sights on tonight's quarterly earnings announcement. Around 12,000 contracts crossed the tape, representing a 54% mark-up to the average daily volume for call options. The most active strike on the day was DIS' February 55 call, which saw more than 2,400 contracts trade. The majority of these went off at the ask price, implied volatility ticked 4.5 percentage points higher, and open interest rose overnight, pointing to the initiation of new positions.
In order for these out-of-the-money calls to be profitable, DIS must rise 2.8% above current levels to land north of breakeven at $55.70 (strike plus volume-weighted average price of $0.70) by the close on Friday, Feb. 15, at which point front-month options expire. At yesterday's close, delta for this option was docked at 36%, implying a more than 1-in-3 chance the calls will finish in the money at expiration. Should the stock fail to topple the $55.70 mark by next Friday, the most the call buyers have risked is the initial premium paid.
Expanding the scope reveals that traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been picking up calls over puts at a healthier-than-usual clip of late. The stock's 10-day call/put volume ratio of 1.79 ranks in the 60th percentile of its annual range, suggesting calls have been bought to open over puts at a slightly accelerated pace during the past two weeks.
On the charts, DIS has been in a steady uptrend in recent months, with the stock rebounding 16.4% from its most recent low of $46.53, which was tagged on Nov. 9. In fact, this pullback positioned the equity to take a solid bounce of its 200-day moving average, and, as a result, DIS jumped to an all-time high of $54.87 on Jan. 24.
As mentioned, the entertainment issue is slated to step into the earnings confessional after tonight's close. The company has met or exceeded analysts' bottom-line expectations in each of the last four quarters, and Wall Street is calling for a profit of 76 cents per share in DIS' fiscal first quarter.