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Bulls Bet on Post-Earnings Highs for The Walt Disney Company


DIS's front-month call volume surges ahead of earnings

The Walt Disney Company (NYSE:DIS) -- which is on deck to report quarterly earnings after today's close -- was on the bullish radar yesterday, as roughly 32,000 calls changed hands during the course of the session. This was more than three times the norm, and about double the number of puts traded. It looks as though a number of Monday's speculators are expecting a post-earnings pop for the equity, as well as a move into uncharted territory.

Most popular on the call side of the tape was the May 67.50 strike, where 4,630 contracts were exchanged at a volume-weighted average price (VWAP) of $0.51. The majority of these out-of-the-money calls crossed at the ask price, suggesting they were bought. Meanwhile, open interest at this strike surged by 3,760 contracts overnight, indicating the initiation of new positions.

By purchasing the calls to open, traders are expecting The Walt Disney Company to muscle north of $68.01 (strike price plus the VWAP) by the close on May 17, when front-month options expire. This denotes expected upside of about 4.8% to the stock's present price at $64.89, and would mark a new record high for DIS. Also of note, the delta for these options is docked at 0.27, meaning they have a better than 1-in-4 chance of finishing in the money.

Yesterday's preference for calls over puts coincides with the entertainment giant's recent trend in the near-term options pits. Schaeffer's put/call open interest ratio (SOIR) for DIS checks in at 0.63, with calls comfortably outnumbering puts among options due to expire within the next three months. This ratio arrives in the 15th percentile of its annual range, conveying short-term traders have rarely been more call-heavy toward the stock during the past year.

Technically speaking, DIS has gained over 30% year-to-date, and more than 48% on a year-over-year basis. The security has also outperformed the broader S&P 500 Index (INDEXSP:.INX) by close to 12 percentage points over the last three months. On the charts, the stock continues to trade well above its ascending 10-month moving average, which has served as support since January 2012.

As alluded to earlier, The Walt Disney Company will reveal fiscal second-quarter earnings after today's closing bell, and has bested or matched consensus bottom-line estimates in seven of the past eight quarters. However, the equity has traded an average of 1.3% lower the day after posting earnings, and was still off roughly 1.2% a week later. Analysts are currently expecting a profit of $.77 per share.

This article by Terri Stridsberg was originally published on Schaeffer's Investment Research.

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