Shares of Walt Disney have had a great year, rising more than 13 percent in 2015 and far outpacing the market as a whole. But for one options trader, the run must have felt especially magical.
In June, a trader bought 50,000 of the April 100-strike calls in Disney for about $1.70 each. With each options contract controlling 100 shares, this represented an $8.5 million bet that Disney shares would rise above $101.75 by April. Given that shares were trading below $85 at the time, that must have seemed like a quite a long shot.
Fast-forward to the trade's expiration day, Friday. Despite falling on a tough day for the market, the stock still logged an advance of 25 percent over that time. And that left the option trader is a very strong position.
Since a call represents the right to buy a stock for a certain price at a given time, owning those calls granted the options holder the right to purchase Disney shares for $100 at the close of Friday trading. That was quite valuable, since Disney shares closed at $106.69.
Actually, the trader appeared to take off half of the trade on Friday morning at a price of $6.80 per options contract (perhaps because the trader didn't want to own as many Disney shares as the call allowed). If half the calls translated into Disney shares purchased at a $6.69 discount, and half the calls were sold at a price of $6.80, the position ended up being worth nearly $34 million.
Since the position was entered into for $8.5 million (excluding transaction costs) that represents a profit of $25.5 million, or 300 percent.
"This is why I trade options instead of stock—because you can get the better return on investment if you're right about your position," commented Andrew Keene, an options trader with Keene on the Market. "This trader just locked in massive profits in Disney."
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