Options Action
Friday 5:30 PM ET, Saturday & Sunday 6:00 AM ET
Options Action

Traders are using the Disney selloff as a chance to buy

Options Action: Magical move for Disney?

Shares of Walt Disney Co., previously the best performer in the Dow Jones industrial average year to date, plunged on Wednesday after the company reported quarterly earnings. Although earnings came in above analyst expectations, revenue fell short, prompting a drop of almost 10 percent. But some traders are using the drop as a buying opportunity and expect the stock to rebound to prior highs.

"This could make sense, because after earnings come out, the premium drops and now you can risk just 1.5 percent to make that bullish bet," CNBC contributor Mike Khouw said Wednesday on CNBC's "Fast Money."

Disney options traded at nine times their average daily volume on Wednesday. According to Khouw, Disney was one of the most active stocks on Wednesday, second only to dividends options trading in Apple.

Specifically, traders bought the September 115-strike calls for $1.50 and the January 120-strike calls for $2.85, "two of the most surprising places where we saw activity," Khouw said. Buyers of those calls see Disney gaining about 5 percent by September, or about 10 percent by January.

Read More Walt Disney earnings: $1.45 per share, vs expected EPS of $1.42

Disney's shares extended losses on Thursday, trading down about 4 percent at $105. The stock is up more than 13 percent year to date.

The media company's slowing revenue sparked concern for similar companies and a changing TV subscription model, dragging down shares of Time Warner, CBS and Viacom.

Read MorePay TV industry shows cracks in media earnings

However, the majority of analysts are still bullish on the stock, with an average price target of $121.54.

On Wednesday, Guggenheim Securities revised its target price on Disney to $120 from $127, but noted long-term growth potential for the company.

"We believe that investors will continue to take a longer-term view of valuing unique asset stories and see Disney as continuing to fit this category despite growing concern about the pay-TV marketplace," Guggenheim's Michael Morris wrote in a note to clients Wednesday.