The last time I wrote about Walt Disney (DIS) stock and its unusual options activity in a Barchart.com commentary was last October. One of Disney’s put options had the seventh-highest Vol/OI ratio of the day.
Despite my hesitation to cover a stock whose story of redemption was in the early innings of its transformation, its unusual options activity suggested that interest in DIS stock, both bullish and bearish, was rising.
“I expect Disney put options to remain unusually active over the remainder of the year and into 2024 as investors continue to bet on Bob Iger’s success or failure righting the Mouse House,” I said, finishing my commentary.
Fast forward to the penultimate day of February. Disney options remained unusually active with 11 calls or puts with Vol/OI ratios of 1.25 or greater with three in double digits.
DIS stock in 2024 is up more than 22%, giving long-time investors hope that the company has regained its groove. And while it’s nowhere near its March 2021 all-time high of $203.02, the stock’s slowly digging itself out of a big hole.
Can it get back to $200? If I had known that, I wouldn’t be writing this piece; I’d be on a beach somewhere nice. Alas, that’s not the case.
I know that Disney’s unusual options activity continues to get more interesting by the day. There’s a bet to be. Here are my two cents on this subject.
Have Disney’s Options Volumes Increased Since October?
On October 12, the day of my last Disney commentary, the stock’s options volume was 87,080. I can't remember what the 30-day average volume was at that point. Today, it’s 155,894, so I’m somewhat confident it’s higher than last October.
Out of 22 trading days in October, only on one occasion (Oct. 6) was the option volume greater than 155,984. From Jan. 17 through Feb. 28 (30 trading days), nine days were over that number, including 826,466 on Feb. 8.
That tells me that the interest has picked up. Not surprisingly, Feb. 8 was the day after it delivered excellent Q1 2024 results.
One point of interest: October's put/call OI ratio was 0.63. Today, it’s 0.83, a possible indication that investors are getting slightly more bearish about Disney but are still very optimistic about the company and its stock.
The Good News Stoking the Gains
As I mentioned, the company’s Q1 2024 results helped boost Disney stock in the weeks since. Barchart contributor Mohit Oberoi discussed CEO Bob Iger’s turnaround in his Feb. 12 piece about the company.
Notable positives mentioned by Oberoi included:
- The company’s 2024 earnings per share guidance is $4.60, at least 20% higher year-over-year.
- A reduction in streaming losses to just $216 million.
- A 50% increase in its semi-annual dividend and a $3 billion buyback.
- It invested $1.5 billion in Epic Games.
- The yet unnamed sports streaming service from Disney, Fox (FOX) (FOXA), and Warner Bros. Discovery (WBD).
- It’s on track to meet or exceed its $7.5 billion cost-cutting plan.
I’ve always been a fan of its Parks and Experiences business, so I was happy to hear it is investing $60 billion over the next decade to keep this segment growing revenues and operating profits.
Parks and Experiences generated 80% of Disney’s segment operating profit in Q1 2024 from just 38% of its revenue. This business must keep chugging along.
Overall, the upside for its various businesses seems much higher than any downside they may have.
The 3 Unusually Active Options in Play
First of all, let me say that I don’t believe DIS stock can get to $200 in 2024. For all I know, it might not get there until 2026. It might not even get there at all.
However, if you’re super bullish about its chances, the three unusually active options from yesterday’s trading can get you started on a plan to ride the climb to $200.
So, we had a May 17 $125 call, a May 17 $135 call, and a March 15 $118 call. I’ll cover the two with 78 days to expiration first and then the third one expiring in two weeks.
Based on a closing price of $110.80, the $125 call had an ask price of $1.50, which is a down payment of 1.2%. The $135 call had an ask price of $0.53 for a 0.4% down payment. They’re both inexpensive options.
To double your money by selling the call before it expires, DIS stock must move $7.40 higher for the $125 call and $6.63 higher for the $135 call. The outlay difference between the two is only $97. So, it becomes a personal preference. I like to see an easier path to profits, which says the $135 is the better buy.
As for the March 15 $118 call, the $0.30 ask is a 0.25% down payment on the $118 strike. With a delta of 0.10707, its shares must move up $2.80 over the next 15 days to double your money by selling the option before its expiry.
All three have a good chance of paying off for call buyers who sell early. However, the objective here is to work toward benefiting from a move to $200. With that in mind, I’d go with the $135 call. You only need the share price to increase 6% over the next 11 weeks to make money.
Any good news not revealed in the latest earnings report to come to light before May’s earnings would most certainly push DIS shares up by double digits.
Here comes $200.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
