What are your options - Disney earnings trades What are your options - Disney earnings trades What are your options - Disney earnings trades

What are your options - Disney earnings trades

Options 10 minutes to read
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Koen Hoorelbeke

Options Strategist

Summary:  Our latest article provides a comprehensive overview of eight distinct options trading strategies. These strategies are designed to capitalize on the anticipated decrease in volatility following Disney's earnings release. Each strategy is meticulously crafted to cater to a specific market outlook, offering a robust toolkit for traders. This article serves as a valuable resource for both novice and experienced traders, aiming to enhance their trading acumen and decision-making process in the dynamic world of options trading.


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What are your options: Disney pre-earnings trade setups

Today, our focus is on Disney, which is scheduled to release its earnings report after the bell. This article outlines eight options trades that can be set up today, prior to the earnings release. These strategies are designed to leverage the expected decrease in volatility, potentially leading to maximum profits at the opening tomorrow.

The strategies are categorized based on market outlook: three for a bullish outlook, two for a neutral outlook, and three for a bearish outlook. Each strategy is a credit strategy, intended to benefit from the earnings announcement tonight. The objective is to establish a position before the close, to fully benefit from the potential decrease in volatility.

The expected move is a crucial factor in these strategies. Each strategy takes the expected move into account, allowing you to choose the direction based on your outlook. Whether you’re planning to trade today or learn for future earnings events, these strategies provide a practical guide to options trading around major corporate announcements. Let’s proceed to discuss these strategies and prepare for the world of options trading.

2023-11-08-00-DIS-Graph
  • While the exact figures for Disney’s forthcoming earnings release are not yet known, historical data suggests significant shifts in implied volatility (IV) and implied volatility rank (IVR) following the announcement.
  • Past earnings releases have typically resulted in a decrease in both IV and IVR. For instance, on August 9, 2023, Disney experienced a 29.46% drop in IV and a substantial 71.31% reduction in IVR post-earnings.
  • Disney’s stock price has also shown volatility in response to earnings releases. On May 10, 2023, the stock price fell by 8.73%, while on August 9, 2023, it rose by 4.88%.
  • The expected move is a crucial element to consider when planning options trades. As of November 7, 2023, the expected move for the November 10, 2023 expiry is + or - $4.80 (5.71%).
  • These historical trends can inform your options trading strategies. In anticipation of a large decrease in IV and IVR, all eight trade setups presented in this article are designed as short volatility strategies to profit optimally of that options price reduction that occurs after an earnings release. It is your outlook that determines which strategy to choose.

Please note that these observations are based on historical data, and actual outcomes may vary. It’s important to consider a range of factors when planning options trades.

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

In this article we're going to cover the following strategies:

  • Bullish strategies
    • Short (naked) Put
    • Short/Credit Put Vertical Spread
    • Short/Credit Put Broken Wing Butterfly
       
  • Neutral / range bound strategies
    • Short Strangle
    • Short Iron Condor
       
  • Bearish Strategies
    • Short (naked) Call
    • Short/Credit Call Vertical Spread
    • Short/Credit Call Broken Wing Butterfly
 

Bullish Strategies

2023-11-08-01-DIS-ShortPut

Short put on Disney (DIS)

  • Underlying Stock: DIS:xnys, Last Traded at $84.12
  • Options Details:
    • Sell to Open 1x 83 Put, 10-Nov-2023, Bid/Ask: 2.01/2.03, Delta: -0.4071
  • Trade Setup: Type: Limit, Quantity: 1, Price (Credit): 2.02 USD, Duration: Day Order
  • Financials:
    • Premium (Credit): 202.00 USD
    • Margin Impact: 581.80 EUR
    • Max Risk: -8,098.00 USD
    • Max Profit: 202.00 USD
    • Breakeven: 80.98 USD

  • This trade involves selling a put option with a strike price of $83, expiring on the 10th of November, 2023, which credits the seller $202, suggesting a neutral to bullish outlook on the stock. The breakeven point for this trade is $80.98. The maximum risk is significant at $8,098 compared to the maximum profit of $202, which is characteristic of naked short put strategies.
  • A word of caution: this is an undefined risk strategy, and should only be done if you have enough experience: the expiry date is only 3 days away, max profit compared to margin impact is very advantageous. However if the stock moves below your breakeven, losses can quickly rise well above the margin impact and could be substantial! Be sure to know how to adjust (roll down and/or roll out) or set strict stop-losses.
 
2023-11-08-02-DIS-PutCreditSpread

Put Credit Spread on Disney (DIS)

 
  • Underlying Stock: DIS:xnys, Last Traded at $84.17
  • Options Details:
    • Sell to Open 1x 83 Put, 10-Nov-2023, Bid/Ask: 2.00/2.02, Delta: -0.4040
    • Buy to Open 1x 78 Put, 10-Nov-2023, Bid/Ask: 0.49/0.50, Delta: -0.1451
  • Trade Setup:
    • Type: Limit, Quantity: 1, Price (Credit): 1.51 USD, Duration: Day Order
  • Financials:
    • Premium (Credit): 149.00 USD
    • Margin Impact: 275.00 EUR
    • Max Risk: -351.00 USD
    • Max Profit: 149.00 USD
    • Breakeven: 81.51 USD

  • The strategy involves selling an 83 put and buying a 78 put with the same expiration date, resulting in a net credit of $149. The breakeven point is $81.51. This trade has a defined risk of $351 and a defined profit of $149, characteristic of a credit spread that suggests a neutral to bullish outlook on the stock.

 


2023-11-08-03-DIS-PutBWB

Put Broken Wing Butterfly (BWB) on Disney (DIS)

  • Underlying Stock: DIS:xnys, Last Traded at $84.22
  • Options Details:
    • Sell to Open 2x 88 Put, 10-Nov-2023, Bid/Ask: 4.90/5.00, Delta: -0.6927
    • Buy to Open 1x 92 Put, 10-Nov-2023, Bid/Ask: 8.10/8.20, Delta: -0.8566
    • Buy to Open 1x 80 Put, 10-Nov-2023, Bid/Ask: 0.92/0.93, Delta: -0.2367
  • Trade Setup:
    • Type: Limit, Quantity: 1, Price (Credit): -0.87 USD, Duration: Day Order
  • Financials:
    • Premium (Credit): -87.00 USD
    • Margin Impact: 272.90 EUR
    • Max Risk: -313.00 USD
    • Max Profit: 487.00 USD
    • Breakeven: 83.13 USD

  • This strategy includes selling two 88 puts, buying one 92 put, and buying one 80 put, all with the same expiration date. The net credit received is $87, with a breakeven point of $83.13. The maximum risk for this trade is $313, while the maximum profit is $487, which would be achieved if the stock ended this week's trading session at $88, a price that is around the expected move (+/- $4.80).

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Neutral / Range Bound Strategies

2023-11-08-04-DIS-ShortStrangle

Short Strangle on Disney (DIS)

  • Underlying Stock: DIS:xnys, Last Traded at $84.27
  • Options Details:
    • Sell to Open 1x 90 Call, 10-Nov-2023, Bid/Ask: 0.76/0.78, Delta: 0.2143
    • Sell to Open 1x 80 Put, 10-Nov-2023, Bid/Ask: 0.93/0.95, Delta: -0.2382
  • Trade Setup:
    • Type: Limit, Quantity: 1, Price (Credit): 1.68 USD, Duration: Day Order
  • Financials:
    • Premium (Credit): 168.00 USD
    • Margin Impact: 474.78 EUR
    • Max Risk: Infinite
    • Max Profit: 168.00 USD
    • Breakeven Points: 78.32 USD, 91.68 USD

  • This strategy involves selling a call and a put at different strike prices, both with the same expiration date, resulting in a net credit of $168. The breakeven points are $78.32 and $91.68, and while the maximum profit is capped at the premium received, the maximum risk is theoretically infinite because the stock price can potentially rise indefinitely.
  • A word of caution: this is an undefined risk strategy, and should only be done if you have enough experience: the expiry date is only 3 days away, max profit compared to margin impact is very advantageous. However if the stock moves outside of your breakeven-points, losses can quickly rise well above the margin impact and could be substantial! Be sure to know how to adjust (roll down/up and/or roll out) or set strict stop-losses. Also take into account that margin impact can fluctuate if the prices move nearer to the strike prices during the course of their life-span.
 
2023-11-08-05-DIS-ShortIronCondor

Short Iron Condor on Disney (DIS)

  • Underlying Stock: DIS:xnys, Last Traded at $84.26
  • Options Details:
    • Buy to Open 1x 95 Call, 10-Nov-2023, Bid/Ask: 0.22/0.23, Delta: 0.0771
    • Sell to Open 1x 90 Call, 10-Nov-2023, Bid/Ask: 0.76/0.78, Delta: 0.2140
    • Sell to Open 1x 80 Put, 10-Nov-2023, Bid/Ask: 0.93/0.95, Delta: -0.2397
    • Buy to Open 1x 75 Put, 10-Nov-2023, Bid/Ask: 0.17/0.18, Delta: -0.0619
  • Trade Setup:
    • Type: Limit, Quantity: 1, Price (Credit): 1.30 USD, Duration: Day Order
  • Financials:
    • Premium (Credit): 130.00 USD
    • Margin Impact: 191.18 EUR
    • Max Risk: -370.00 USD
    • Max Profit: 130.00 USD
    • Breakeven Points: 78.70 USD, 91.30 USD

  • This strategy involves selling a call and a put and then buying a further out-of-the-money call and put to limit risk, with the same expiration date. The net credit received is $130. The breakeven points are $78.70 and $91.30. This trade has a defined risk of $370 and a potential profit of $130, characteristic of an iron condor strategy that suggests a neutral outlook on the stock.

2023-11-08-06-DIS-ShortCall

Short Call on Disney (DIS)

  • Underlying Stock: DIS:xnys, Last Traded at $84.26
  • Options Details:
    • Sell to Open 1x 90 Call, 10-Nov-2023, Bid/Ask: 0.77/0.78, Delta: 0.2145
  • Trade Setup:
    • Type: Limit, Quantity: 1, Price (Credit): 0.77 USD, Duration: Day Order
  • Financials:
    • Premium (Credit): 77.00 USD
    • Margin Impact: 447.02 EUR
    • Max Risk: Infinite
    • Max Profit: 77.00 USD
    • Breakeven: 90.77 USD

  • This strategy involves selling a call option with a strike price of $90, expiring on the 10th of November, 2023. The seller receives a credit of $77, indicating a bearish outlook on the stock. The breakeven point for this trade is $90.77. The maximum risk is theoretically infinite because the stock price can potentially rise indefinitely, whereas the maximum profit is capped at the premium received.
  • A word of caution: this is an undefined risk strategy, and should only be done if you have enough experience: the expiry date is only 3 days away, max profit compared to margin impact is very advantageous. However if the stock moves above your breakeven-point, losses can quickly rise well above the margin impact and could be substantial! Be sure to know how to adjust (roll down/up and/or roll out) or set strict stop-losses. Also take into account that margin impact can fluctuate if the price moves near to the strike price during the course of its life-span.
 
2023-11-08-07-DIS-CallCreditSpread

Call Credit Spread on Disney (DIS)

  • Underlying Stock: DIS:xnys, Last Traded at $84.20
  • Options Details:
    • Sell to Open 1x 86 Call, 10-Nov-2023, Bid/Ask: 1.89/1.92, Delta: 0.4145
    • Buy to Open 1x 91 Call, 10-Nov-2023, Bid/Ask: 0.59/0.61, Delta: 0.1762
  • Trade Setup:
    • Type: Limit, Quantity: 1, Price (Credit): 1.32 USD, Duration: Day Order
  • Financials:
    • Premium (Credit): 132.00 USD
    • Margin Impact: 262.71 EUR
    • Max Risk: -368.00 USD
    • Max Profit: 132.00 USD
    • Breakeven: 87.32 USD

  • This strategy involves selling a call option with a strike price of $86 and buying a call option with a strike price of $91, both expiring on the 10th of November, 2023. The trader receives a net credit of $132 for entering this trade. The breakeven point is $87.32. The maximum risk is $368, and the maximum potential profit is the premium received of $132. This trade setup suggests a bearish to neutral outlook on the stock.

2023-11-08-08-DIS-CallBWB

Call Broken Wing Butterfly (BWB) on Disney (DIS)

  • Underlying Stock: DIS:xnys, Last Traded at $84.29
  • Options Details:
    • Sell to Open 2x 80 Call, 10-Nov-2023, Bid/Ask: 5.20/5.30, Delta: 0.7653
    • Buy to Open 1x 76 Call, 10-Nov-2023, Bid/Ask: 8.50/8.65, Delta: 0.9181
    • Buy to Open 1x 88 Call, 10-Nov-2023, Bid/Ask: 1.24/1.27, Delta: 0.3091
  • Trade Setup:
    • Type: Limit, Quantity: 1, Price (Credit): -0.90 USD, Duration: Day Order
  • Financials:
    • Premium (Credit): -90.00 USD
    • Margin Impact: 273.05 EUR
    • Max Risk: -310.00 USD
    • Max Profit: 490.00 USD
    • Breakeven: 84.90 USD

  • This strategy includes selling two 80 calls, buying one 76 call, and buying one 88 call, all with the same expiration date. The net credit received is $90, with a breakeven point of $84.90. The maximum risk for this trade is $310, while the maximum profit is $490, which would be achieved if the stock ended this week's trading session at $80, a price that is around the expected move (+/- $4.80).

Conclusion

In conclusion, this article presents a range of options trading strategies to leverage the expected decrease in volatility following Disney’s earnings release. These strategies, informed by historical data, are categorized based on market outlook and are designed as short volatility strategies. While these strategies provide a practical guide, it’s crucial to remember that investing in the stock market carries risk, and careful consideration is essential when planning options trades. Happy trading!


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