When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (DIS) – TAKE PROFITS
SELL the Walt Disney Co. (DIS) September, 2018 $105-$110 in-the-money vertical BULL CALL spread at $4.30 or best
Closing Trade- NOT FOR NEW SUBSCRIBERS
8-24-2018
expiration date: September 21, 2018
Portfolio weighting: 10%
Number of Contracts = 24 contracts
As much as I love Walt Disney shares for the long term, it is not delivering for the short term. We got the earnings report we wanted, but it turned out to be a “buy the rumor, sell the news.” The shares have been moving sideways since, which means we have been carrying a whole lot of risk for no reward.
However, we did eke out nearly three weeks of time decay on the options position. I am coming out to close at cost here and selling my position in the Walt Disney Co. (DIS) September, 2018 $105-$110 in-the-money vertical BULL CALL spread at $4.30 or best.
If you own the shares keep them. There is still plenty of upside over the long term,
This was a bet that (DIS) will not trade below $110 by the September 21 option expiration in 23 trading days.
There are plenty of reasons for shareholders to stick with (DIS). Look at the long-term charts below and you will see that Walt Disney Co. shares are about to break out to a new four year high.
The shares have gone nowhere during this time. However, their net earnings have risen by 40% over the same time frame.
Disney has stalled because of the fears that its rapidly shrinking ESPN might be a drag on the company’s earnings. By now, its earnings have shrunk so much that they are no longer a major factor in Disney earnings.
I just visited Disneyland in Paris, France and anyone who can sell a chocolate shake for $15, a hamburger for $20, and a T-shirt for $50 is to be admired.
Another advantage in the options play here is that with the summer doldrums and a holiday ahead of us time decay will be your best friend. And who knows, he might even see a surprise victory in the trade wars declared ahead of the midterm elections?
I’ll never forget the first time I met Walt Disney. There he was at the entrance on opening day of the first Disneyland in Anaheim, CA in 1955 on Main street shaking the hand of every visitor as they came in. My dad sold the company truck trailers and managed to score free tickets for the family.
At 100 degrees on that eventful day it was so hot that the asphalt streets melted. Most of the drinking rooms and bathrooms didn’t work. And ticket counterfeiters made sure that 100,000 jammed the relatively small park. But we loved it anyway. The band leader handed me his baton and I was allowed to direct the musicians in the most ill-tempoed fashion possible.
After Walt took a vacation to my home away from home in Zermatt, Switzerland he decided to build a roller coaster based on bobsleds running down the Matterhorn on a 1:100 scale. In those days, each ride required its own ticket, and the Matterhorn needed an “E-ticket”, the most expensive. It was the first tubular steel roller coaster ever built.
Walt Disney shares have been on anything but a roller coaster ride for the last four years. In fact, they have absolutely gone nowhere.
The main reason has been the drain on the company presented by the sports cable channel ESPN. Once the most valuable cable franchise, the company is now suffering on multiple fronts, including the acceleration of cord cutting, the demise of traditional cable, the move to online streaming, and the demographic abandonment of traditional sports like football.
However, ESPN’s contribution to Walt Disney earnings is now so small that it is no longer a factor.
In the meantime, a lot has gone right with Walt Disney. The parks are going gangbusters. With two teenaged girls in tow I have hit three in the past two years (Anaheim, Orlando, Paris).
The movie franchise is going from strength to strength. Pixar has Frozen 2and Toy Story 4 in the pipeline. Look for Lucasfilm to bring out a new trilogy of Star Wars films, even though Solo: A Star Wars Story was a dud. Its online strategy is one of the best in the business. And it’s just a matter of time before they hit us with another princess. How many is it now? Nine?
It is about to expand its presence in media networks with the acquisition of 21st Century Fox (FOX) assets, already its largest source of earnings. It will join the ABC Television Group, the Disney Channel, and the aforementioned ESPN.
It has notified Netflix (NFLX) that it may no longer show Disney films, so it can offer them for sale on its own streaming service. Walt Disney is about to become one of a handful of giant media companies with a near monopoly.
What do you buy in an expensive market? Cheap stuff, especially quality laggards. Walt Disney totally fits the bill.
As for old Walt, he died of lung cancer in 1966, just when he was in the planning stages for the Orlando Disney World. All that chain smoking finally got to him. Despite that grandfatherly appearance on the Wonderful World of Color weekly TV show, friends tell me he was a complete bastard to work for.
Here are the specific trades you need to execute this position:
Sell 24 September 2018 (DIS) $105 calls at…….………$7.40
Buy to cover short 24 September 2018 (DIS) $110 calls at….$3.10
Net Proceeds:………………………….…………..…….…
Potential Profit: $4.30 - $4.20 = $0.10
(24 X 100 X $0.10) = $43 or 2.38%.
To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you.
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