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Disney's Tragic Kingdom

It's official. The pixie dust is wearing off for Disney shares.

The company's stock had made a bold effort - easily among the best performing media stocks in the past year. But the last quarter was the first full one since the economy fell off a cliff, and the Magic Kingdom is now facing reality.

Overall quarterly profit fell 32%.

Even its cable networks felt the pinch of a slowing ad market. More disturbing, perhaps, were comments from Disney boss Bob Iger, who alluded to how the evolving digital landscape was clouding the outlook for future revenue.

"At the same time, certain of our businesses are experiencing signs of secular change, as competition for people's time is increasing and the abundance of choice is allowing consumers to be more selective," Iger said in prepared remarks.

That's another way of saying there are long-term structural problems with the way media companies operate. Still, Disney trades at a much higher multiple to its peers, something Barclay's entertainment analyst Anthony DiClemente pointed out in his morning note.

"Despite a triumvirate of worries, Disney trades at a premium valuation to the group, at 11.1X '09 EPA, versus 9.8X for the Entertainment sector," DiClemente wrote.

Last Friday, we highlighted the dangers lurking in Disney. Ron Ianieri, chief market strategist at ION Options, recommended selling what's called a call spread, in which he sold the Feb 20 Call for $1.50 and bought the Feb 22.5 Call for $0.50. In this trade, he collects a dollar ($1.50 - $0.50), and risks the difference between the two strikes (22.5 - 20), or $2.50. So net net, he makes a buck, and the most he can lose is $1.50 (difference in strikes, minus the credit for selling the spread).

Right now, Ron's call spread is trading for $0.50, and if stock in the tragic kingdom continues where it is, he could be well on his way to earning the full buck.

Not great, but in a market like this, certainly nothing to sneeze at.

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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