Walt Disney Co (DIS) Options Buyers Score a Bargain Ahead of 'Star Wars'

Ahead of the "Star Wars" release, Walt Disney Co (NYSE:DIS) near-term options are pricing in relatively low volatility expectations

Dec 5, 2016 at 11:07 AM
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Dow stock Walt Disney Co (NYSE:DIS) has been having a rough time on the charts -- shedding nearly 13% of its value over the past 12 months. But the stock is up 1.3% at $99.80 today, after the company's newest film, "Moana," topped the box office for a second straight weekend. The shares are also getting a boost after Barron's named the blue chip one of its 10 favorite stocks for 2017, calling it "one of the world's best brands." (subscription required). And more excitement could be ahead for DIS, with the newest "Star Wars" installment set for release this month. Amid all this action, call buying has been popular, and those purchasing near-term options could be getting a relative bargain.

Digging right in, 2.39 DIS calls have been purchased for each put over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Moreover, this ratio ranks in the elevated 95th percentile of its annual range. That call-skewed trading is continuing today, with 9,816 DIS calls on the tape, compared to 5,042 puts. So far, it looks like some speculators may be buying to open the February 105 call, betting on a breakout above the century mark by February options expiration.

As indicated, those currently purchasing DIS' short-term options are in luck. The stock's 30-day at-the-money implied volatility of 14.5% sits in the low 13th percentile of its 12-month range, while its Schaeffer's Volatility Index (SVI) of 15% ranks lower than all but 9% of the past year's reading. Put simply, the equity's short-term options are currently pricing in unusually low volatility expectations at the moment -- a potential boon to premium buyers.

From a technical standpoint, though, Walt Disney Co (NYSE:DIS) could be facing a major hurdle at the overhead $100 mark. The shares haven't topped this round-number level on a daily closing basis since July. Plus, the century mark currently coincides with DIS' 320-day moving average -- a trendline that has contained the stock throughout 2016. What's more, the 100 strike is home to peak call open interest in the December and January series, with roughly 76,500 contracts collectively outstanding, which could reinforce this area as resistance in the near term.

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