GO
Loading...

A Disney trade that could be magical

Monday, 5 Aug 2013 | 2:07 PM ET
Magical trade on Disney ahead of earnings
Monday, 5 Aug 2013 | 5:35 PM ET
Disney reports earnings after Tuesday's close. So how can you cash in on the event? Mike Khouw of DASH Financial breaks it down.

Disney reports its fiscal third-quarter earnings after the bell on Tuesday. But traders hoping to make bullish bets ahead of the event have a bit of a problem.

"We actually had a lot of news out in the media stocks already," said Mike Khouw of DASH Financial.

Analysts expect Disney to report 5 percent growth in revenue, and a 1 percent increase in earnings per share. But Comcast (which owns CNBC parent NBCUniversal) and CBS already reported earnings on Wednesday. Both companies beat analyst expectations, which put a bit of wind in Disney's sails, leading the stock to rise 2.6 percent from last Monday's open to Friday's close.

Getty Images

(Read more: Cable, content companies stop fighting: Comcast CEO)

For that reason, Khouw thinks media stocks have already made their earnings-related move.

Instead of specifically playing the earnings, then, Khouw says a better bullish bet is buying a longer-dated call on Disney.

(Read more: Why ESPN is key to Disney's upcoming earnings)

Specifically, Khouw suggests buying the January 70-strike call for $1.85. This trade makes money if Disney rises above $71.85 by January expiration.

If Disney shares close below $70 on January expiration, this trade will result in a loss of that $1.85 spent. But on the upside, this trade will capture the full value of any move above $71.85 in the stock.

—By CNBC's Alex Rosenberg. Follow him on Twitter: @C NBCAlex.

Follow the show on Twitter: @CNBCOptions.

  Price   Change %Change
DIS
---
CMCSA
---
CBS
---

Contact

  • Showtimes

    Fridays, 5:30p ET
    Saturday, 6a ET
    Sunday, 6a ET
  • Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

Latest Video

Options Action Daily Reports

Sponsored Related Links

More on thinkorswim by TD Ameritrade

  • Make sure you’re always keeping up with the market with up-to-the-minute news and breaking stories. Move on possible breakout stocks and options with potential opportunity. Plus, get in-depth analysis on futures and forex in one seamless, integrated experience. Join TD Ameritrade and trade commission-free for 60 days + get up to $600 cash.

You Make the Call

  • Mike Khouw, Options Action trader, shares his view on News Corp stock on the heels of testimony from Rupert Murdoch before British Parliament.

  • Do you have a question for the Options Action team? Options Action selects a viewer's question and gives the answer on the show's Make The Call Web Extra video.