Walt Disney Co (DIS) Bear Bets On Another Earnings Implosion

Walt Disney Co (DIS) is hoping to avoid another post-earnings collapse -- but one notable trader would prefer that history repeat itself

by Alex Eppstein

Published on Nov 4, 2015 at 3:15 PM
Updated on Jun 24, 2020 at 10:16 AM

Walt Disney Co (NYSE:DIS) and a number of other media stocks are following the bearish lead of Time Warner Inc (NYSE:TWX), which is diving on a downbeat profit forecast. At last check, DIS -- which is scheduled to report its own quarterly numbers Thursday evening -- is off 2.4% at $112.81. This move lower has caught the attention of at least one option bear.

Diving right in, DIS puts are crossing the tape at quadruple the expected afternoon rate. Looking even closer, the International Securities Exchange (ISE) indicates one trader bought to open over 10,000 November 105 puts for a volume-weighted average price (VWAP) of $0.85 apiece, and simultaneously sold to open a matching number of November 100 puts for $0.38 each. In other words, the trader paid $0.47 for each long put spread, or $470,000 total (net debit * number of contracts * 100 shares per contract), in the hopes that DIS will reach the round-number century mark by November options expiration -- or possibly to hedge against such a severe drop. Whatever the motive, if the stock is sitting above $105 at the close on Friday, Nov. 20, when front-month options expire, the bettor will part with the entirety of the initial net debit.

Taking a step back, DIS puts have been very popular on the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 50-day put/call volume ratio of 0.90 rests a mere 4 percentage points from an annual peak. Echoing this, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.13 ranks in the 81st percentile of its annual range, suggesting short-term speculators are very put-skewed.

On the charts, Walt Disney Co (NYSE:DIS) has been attempting to battle back from a swoon that occurred in August, following the company's prior earnings report. Specifically, lackluster revenue figures and a downwardly revised profit forecast pressured the shares 9.2% lower in the ensuing session. This time around, the options market is pricing in a more modest post-earnings move of 4.6%, based on near-term at-the-money straddle data.

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