Shares of Walt Disney have skyrocketed this year, up almost 26 percent year to date, the best among all Dow stocks. And according to one trader who focuses on the options market, that rally has made this the perfect time to buy protection on the stock.
"We're not making a bearish call on Disney here," Susquehanna's Stacey Gilbert said Tuesday on CNBC's "Trading Nation." "We're highlighting a strategy that we think is attractive for investors looking to protect those Disney shares."
She said the price of Disney options relative to the price of shares is at one of its lowest levels in two years, creating an opportunity to buy cheap protection through put contracts. A put gives investors the opportunity to sell stock at a set price within a set time.
Gilbert recommends buying the September 115-strike put for $2. The trade is profitable if Disney's stock falls below $113 before the September options expiration date.
According to Gilbert, there are several reasons why investors should hedge against a drop in Disney. The company's stock has soared in the past year, and Monday's ending share price of $118.25 is exceptionally close to the average analyst price target of $121, based on FactSet data.
According to FactSet, 67 percent of analysts covering the company have a "buy" rating, the highest percentage since July 2013.
"Disney's certainly been an outperformer," Gilbert said. But according to her, the combination of inexpensive options prices and a torrid run in the stock makes this an ideal time to lock in gains.
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