Earnings Preview: Walt Disney Co (DIS)

Ahead of earnings, options traders are more bearish than usual toward Walt Disney Co (DIS)

Aug 9, 2016 at 8:38 AM
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As earnings season continues, blue-chip entertainment giant Walt Disney Co (NYSE:DIS) is preparing to deliver its much-anticipated earnings report tonight. Typically, DIS has tended to underperform post-earnings, with the shares moving lower in the subsequent session in six of the past eight quarters. Here's a closer look at Walt Disney Co's technical performance and recent options activity ahead of earnings.

Thanks in part to its recent losing streak, DIS has underperformed the greater S&P 500 Index (SPX) by nearly 11 percentage points over the last 60 sessions, closing Monday at $95.75. DIS shares have been finding resistance near the $100 level -- and their formerly supportive 10-month moving average -- but the $90-$95 region has supported pullbacks since late 2014. This area marks a 23.6% Fibonacci retracement of DIS' rally from early 2009 to August 2015, and is roughly three times' the equity's late-2011 lows near $30.

160808DISchart

In light of DIS' struggles of late, options buyers have grown increasingly skeptical toward the media giant. DIS' 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 1.09 sits at an annual peak, suggesting an unusually strong bearish bias towards the stock over the previous 10 weeks. In the same vein, short interest in the stock is up by 7% over the previous two reporting periods, and would currently take nearly seven sessions to cover, at DIS' average daily volume. 

However, DIS' Schaeffer's put/call open interest ratio (SOIR) of 0.81 sits lower than 97% of all other readings from the past year, showing near-term traders are still more call-heavy than usual. The overhead 100 and 105 strikes are home to peak call open interest in the front-month August series, with more than 54,000 contracts combined. This abundance of calls could exacerbate triple-digit resistance for DIS in the short term.

Short-term option traders have been getting quite a bargain on their purchases, though, with DIS' Schaeffer's Volatility Index (SVI) of 23% in just the 23rd percentile of its annual range, indicating near-term options traders are pricing in relatively low volatility expectations. Further, DIS' Schaeffer's Volatility Scorecard (SVS) sits at a relatively elevated 75, indicating DIS has tended to exceed volatility expectations over the past 12 months -- another boon for buyers ahead of earnings.

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