Walt Disney Co's (DIS) Latest Box Office Hit a Boon to Option Bulls

Walt Disney Co's (DIS) newest "Captain America" movie crushed it at the box office this weekend

by Alex Eppstein

Published on May 9, 2016 at 10:29 AM
Updated on May 9, 2016 at 4:56 PM

Blue-chip stock Walt Disney Co (NYSE:DIS) is helping the Dow higher this morning, after a smashing box office debut by the entertainment firm's latest "Captain America" film. This comes just weeks after a huge opening weekend by "The Jungle Book," also produced by DIS. At last check, the shares have added 0.1% at $105.64, muscling closer to positive year-to-date territory, and on the verge of taking back their 320-day moving average for the first time in 2016. For bullish options traders, this represents quite the boon.

DIS call buying has been extremely popular in recent weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, traders have bought to open 2.27 calls for each put over the last 10 sessions, and the corresponding call/put volume ratio ranks just 6 percentage points from an annual high.

Meanwhile, short sellers have been turning tail. During the last two reporting periods, short interest fell 10.5%, and just 2.8% of the stock's float is currently sold short. However, at DIS' average trading levels, it would still take over six sessions to buy back these positions -- suggesting there's plenty of cash available on the sidelines to fuel a short-covering rally.

Looking ahead, Walt Disney Co (NYSE:DIS) is scheduled to report earnings tomorrow night. Currently, the options market is pricing in a single-day, post-event move of 5.4%, in either direction -- bigger than the average swing of 3.4% over the past eight quarters. Still, it appears there's opportunity for short-term premium buyers, as DIS' Schaeffer's Volatility Scorecard (SVS) of 87 indicates the stock has tended to make outsized moves in the last 12 months, relative to what the options market has priced in.

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