A Disney trade that could be magical

Disney reports its fiscal third-quarter earnings after the bell on Tuesday. But traders hoping to make bullish bets ahead of the event have a bit of a problem.

"We actually had a lot of news out in the media stocks already," said Mike Khouw of DASH Financial.

Analysts expect Disney to report 5 percent growth in revenue, and a 1 percent increase in earnings per share. But Comcast (which owns CNBC parent NBCUniversal) and CBS already reported earnings on Wednesday. Both companies beat analyst expectations, which put a bit of wind in Disney's sails, leading the stock to rise 2.6 percent from last Monday's open to Friday's close.

Walt Disney Co.
Getty Images

(Read more: Cable, content companies stop fighting: Comcast CEO)

For that reason, Khouw thinks media stocks have already made their earnings-related move.

Instead of specifically playing the earnings, then, Khouw says a better bullish bet is buying a longer-dated call on Disney.

(Read more: Why ESPN is key to Disney's upcoming earnings)

Specifically, Khouw suggests buying the January 70-strike call for $1.85. This trade makes money if Disney rises above $71.85 by January expiration.

If Disney shares close below $70 on January expiration, this trade will result in a loss of that $1.85 spent. But on the upside, this trade will capture the full value of any move above $71.85 in the stock.

—By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.

Follow the show on Twitter: @CNBCOptions.

Latest Video

  • The Final Call: MCD & QQQ

    CNBC's Melissa Lee and the Options Action traders discuss the stocks they'll be watching next week.

  • Trouble ahead for Twitter

    The social stock sinks. Is there more trouble ahead for Twitter? With CNBC's Melissa Lee and the Options Action traders, Carter Worth, Mike Khouw and Dan Nathan.

  • Fade the staples rally?

    Consumer staples soar. Should investors fade the staples rally? With CNBC's Melissa Lee and the Options Action traders, Carter Worth, Mike Khouw and Dan Nathan.

Tutorials

Host Bio

  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

Options Action Traders

From Our Sponsor

Sign Up for Our Newsletter Options Action

Insight directly from the members of our Options Action panel
Get this delivered to your inbox, and more info about about our products and services.
By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.