Options Traders Pile on as Disney Stock Scales Dow

Disney reported better-than-expected earnings and revenue

Assistant Editor
Aug 5, 2020 at 10:29 AM
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The shares of Walt Disney Co (NYSE:DIS) are the top Dow stock today, last seen trading up 10.5% at $129.55. This comes after the entertainment icon reported fiscal third-quarter profits and revenue that came in well above Wall Street's estimates. Theme park closures and lack of live sports during the coronavirus pandemic damaged Disney's bottom line, but strong growth from its Disney+ streaming service helped offset the numbers.

This morning, DIS has received no less than eight price-target hikes, as well as upgrades to "buy" and "outperform" from Guggenheim and Credit Suisse, respectively. Among the bull notes, the highest came from Credit Suisse to $146 from $116. The flurry of bull notes should come as no surprise considering coming into today, nine of the 18 in coverage sported a "hold" or worse rating.

Last time with checked in on DIS, the equity was having trouble rising above the $120 level. Today's action helped the stock blast past that mark, while also locking in a solid 14.4% quarterly lead. Additionally, Disney stock is poised to topple its 200-day moving average on a closing basis for the first time since Feb. 20.

Today's big move higher has sparked a frenzy in the options pits. In the first hour of trading alone, over 347,000 options have crossed the tape so far -- 10 times the intraday average and volume pacing in the highest percentile of annual readings. The most popular by far is the weekly 8/7 130-strike call, followed by the 128-strike call from the same series with new positions are being opened at both. 

Today's preference for calls runs counter to the recent options trend. DIS's 10-day put/call volume ratio of 1.05 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), stands higher than all but 82% of readings from the past year. This implies a much healthier appetite for puts of late.

Whatever the motive, with earnings come and gone, weighing in on Disney stock with options could be a prudent play. The stock's Schaeffer's Volatility Index (SVI) of 39% stands higher than just 19% of all other readings in its annual range, implying that options players are pricing in relatively low volatility expectations at the moment. 

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