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Options traders bet on an earnings breakout for Disney shares

Options traders bet on earnings magic for Disney

First, Disney reports earnings. Then, just a few days later, the company's highly anticipated streaming service Disney+ launches.

It's safe to say investors are expecting fireworks.

The magic kingdom heads into Thursday's earnings report, which is scheduled for after the bell, up a very respectable 21% in 2019, but the stock hasn't done much of anything since a major surge in April when Disney+ was officially unveiled. The shares are essentially flat over the past six months as investors await new developments on the streaming front.

But those investors might finally have their catalyst for Disney's next breakout. Disney+ finally launches on Tuesday, and suitably, the options market is betting on a sizable move for the stock into this weekend.

"The options market is implying a move of about 3.7% on earnings. Now, that may seem modest given some of the big moves we've seen in some other stocks, but it's worth noting that this is a stock that's moved less than 1.5% on average over the last eight quarters," Optimize Advisors President Michael Khouw said Wednesday on "Fast Money."

Calls more than doubled puts in Wednesday's trading, with overall options trading volume just about twice the daily average. As Khouw would point out, much of that traffic came all at once.

"Where we saw most of the activity was the Nov. 22 weekly 135-strike calls. So, that would actually be capturing both of these upcoming events," said Khouw. "Between 10 and 10:30 a.m., 7,500 of those traded for $2, and nearly 13,000 of them traded all day."

For these traders to break even, they'll need Disney to surge more than 4% from Wednesday's close to Nov. 22 expiration. That would represent a sizable move to the upside given Disney's price action over the last few months, and would put the stock within touching distance of its all-time highs.

"Disney, like many other stocks, is trading very close to – if not at — its peak valuation on a variety of metrics, so it would make some sense to use inexpensive call options to press your bullish bets here," said Khouw.

Disney was up more than 1% on Thursday morning.


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