Disney is scheduled to report earnings after the bell on Tuesday for the first time since the launch of streaming service Disney+.
The entertainment giant has gained about 5% since the launch of the streaming service in November, but options traders aren't convinced that this report will unlock much more upside in the near future, according to Michael Khouw, president of Optimize Advisors.
"We were looking at about two times the normal options volume and right now the options market is implying a move of about 6% higher or lower by the end of the week. That's considerably larger than the eight-quarter average earnings move of about 2.5%," he said Monday on "Fast Money."
As Khouw pointed out, one of the largest Disney options trades of Monday's session appeared to be executed by a trader who holds Disney stock, and it wasn't particularly bullish.
"Somebody went and bought the weekly 135-strike puts, and helped finance the purchase of those puts by selling the weekly 155-strike calls that expire next week," Khouw said. "This person is getting protection for a 5% move to the downside, and willing to sacrifice any gains of 10% or more to the upside for the period that goes from this Friday until next week."
This trade, then, isn't an overwhelmingly bearish bet against Disney, but rather a way to hedge a long position in the name. The trader won't be entitled to any gains above $155 as a result of selling those 155-strike calls, but those gains will be expressed in their existing stock position. Meanwhile, the trade gives them some insurance should the value of their position fall below $135 per share.
"You can put a trade like this on and give yourself a little bit of protection and sell off some additional upside," Khouw said.
"It's more interesting to me in Disney, though, because really, the stock is sort of sideways over the last couple of months, so it's hard to see why they would be expressing so much concern."
Disney was up 2% midday Tuesday.
