Walt Disney Co (NYSE: DIS) is up 1.1% in the past week ahead of the company’s third-quarter earnings report on Thursday and the launch of its Disney+ streaming service on Nov. 12.
Disney investors have high hopes for Disney+ given the stock is up 19.5% overall in 2019, and some large option traders are betting earnings and the Disney+ launch will be a winning combination for the stock.
On Wednesday, Benzinga Pro subscribers received seven option alerts related to unusually large Disney trades. Here are the five largest:
- At 10:09 a.m., a trader sold 587 Disney call options with a $135 strike price expiring on Nov. 22 near the bid price at $1.871. The trade represented an $109,827 bearish bet.
- At 10:10 a.m., a trader bought 750 of the same Disney $135 call options expiring on Nov. 22, this time near the ask price at $1.889. The trade represented a $141,675 bullish bet.
- At 10:15 a.m., a trader sold 1,421 Disney call options with a $155 strike price expiring on March 20, 2020 near the bid price at $1.42. The trade represented an $201,782 bearish bet.
- At 10:24 p.m., a trader bought 2,709 Disney call options with a $135 strike price expiring on Nov. 22 near ask prices at $1.941 and $2.052. The two trades took place within 10 seconds of each other and represented a combined $538,171 bullish bet.
Of the seven large Disney option trades on Wednesday, five were either calls purchased at or near the ask or puts sold at or near the bid, trades typically considered to be bullish. The other two were calls sold at or near the bid, trades typically considered bearish.
Why It's Important
Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small sizes of Wednesday’s Disney options trades by institutional standards, they are unlikely to be institutional hedging.
More Upside Ahead?
Disney+ is set to launch next week and underprices the Netflix, Inc. (NASDAQ: NFLX) standard plan by $5 at $7.99 per month. Disney has said Disney+ will be the exclusive carrier of movies from the “Star Wars” franchise, Marvel, Pixar and Disney’s own studios.
A recent Bank of America survey of U.S. consumers found 27% of respondents would subscribe to the Disney+ service. Disney is also offering a bundle of Disney+, Hulu and EPSN+ for $12.99, the same price as the standard Netflix plan.
Wednesday’s largest Disney option trade has an expiration date of less than three weeks, and its break-even price of above $136.95 implies more than 4.5% upside.
The large option trades on Wednesday were certainly not unanimous in nature, suggesting some option traders are betting earnings and the Disney+ launch could be sell-the-news events. However, the large $200,000 March 2020 call purchase could be a more fundamentally bullish bet that Disney+ will impress the market with its subscriber numbers when the company reports fourth-quarter earnings in early 2020.
Disney's stock traded around $131 per share at time of publication.
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