Weekend Trader Series
November 13, 2022
Open Positions Update
- The Goldman Sachs (GS) January 20, 2023, 340-strike call was closed after hitting its target profit of +100%. If you have not already done so, please close out of your GS position at the earliest opportunity.
- Please extend the scheduled time-stop date on the Chevron (CVX) December 16, 2022, 140-strike call to Monday, November 28.
The following is this week's recommendation:
Walt Disney (DIS)Place a limit order to buy the Walt Disney (DIS) January 20, 2023 105-strike put at a limit price within range of the current market asked price when you place your order. At the close on Friday, November 11, this option was offered at $11.55. DIS closed at $95.01 on Friday, November 11.Do not attempt to enter this position after Monday's close.Please use the following guidelines to manage the position:- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Monday, December 12, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Walt Disney (DIS) is fresh off a fourth-quarter earnings and revenue miss, which pushed the shares below $101 – half its all-time closing high – and the $95 mark, which is the site of an extended trendline connecting lower highs in 2015, 2017, and early 2018. What’s more, the equity is breaking a trendline connecting August, September, and mid-October highs, after retesting it on Friday.
Potential resistance could emerge at the $91 level, which is six times the stock’s 2009 low. DIS is also breaking both short- and long-term support levels, and carries a nearly 40% year-to-date deficit, making now an ideal time to bet on a move lower for the shares.
Analysts are overly optimistic toward Walt Disney stock, leaving plenty of room for downgrades and/or price-target cuts. Of the 30 firms in coverage, 24 carry a "buy" or better rating. Plus, while short interest dipped 30% from early June through late October, DIS failed to rally in this time period – a potential red flag. With short interest now at multi-year lows, it is also likely short interest will start to build from this level.
It’s also worth noting the stock’s open interest (OI) configuration through January. After a break of the 95- and 100-strikes, puts and calls were equal. Puts now predominate down to at least the 70-strike, which could act as a magnet.
Furthermore, the security's Schaeffer's Volatility Scorecard (SVS) sits at a high 97 out of 100, meaning Walt Disney stock has exceeded option traders' volatility expectations in the last year. Our recommended January 2023 105-strike put has a leverage ratio of -6.18 and will double in value on a 13.9% drop in the underlying shares.
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