Disney is set to report earnings after the close Tuesday, and one trader is making a big bet the results will be magical.
On Monday, when options call volume ran two times its daily average, one large institutional trader wagered Disney's stock will trade at all-time highs by the second week of March. Wagering on the mouse house post-earnings has been a surefire bet in the past. In fact, one month out, Disney's stock has been higher after earnings in nine of the last 12 quarters, and all of the last four.
Apparently, this trader feels results will be no different this time.
Specifically, the trader bought 2,500 of the March 13 weekly 92.50-strike calls for $2.10 and sold 5,000 of the March 13 weekly 95-strike calls for $1.05 each. The strategy, called a one-by-two call spread, is profitable if Disney shares are more than 2 percent higher, or above $95 per share on March 13.
In this structure, a trader buys one call and finances that purchase by selling two higher strike calls of the same expiration. Traders generally use this approach when they are long the stock and willing to have their stock called away at the strike of the higher call.
"The average move over the month following earnings in Disney is 5 percent, and that's exactly what one institutional trader bet [on Monday]," said CNBC contributor Michael Khouw said Monday's on "Fast Money."
Wall Street is expecting Disney to earn $1.07 per share on $12.87 billion in revenue in its fiscal first quarter, up 3 cents from a year ago, according to FactSet.
