Bearish Disney (DIS) put trade boosts volume

By Karla Yeh,

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Walt Disney Co. (NYSE: DIS ) shares are in the red on Tuesday morning and are trading relatively in-line with the broad-market weakness. DIS is due to announce earnings after the market closes today, and at least one investor appears to have taken a bearish stance on the company.

The October 31-strike puts were active early during Tuesday's trading session thanks to an investor who paid 54 cents per contract to open long put positions. Current open interest in this line is 2,300 contracts. We saw a few blocks totaling 250 contracts and one large block totaling 6,800 contracts cross the tape around 10:12 a.m. EDT.

Investors who bought these out-of-the-money (OTM) puts are betting on at least 11% of downside during the next couple of months. If the stock is trading lower than the strike price at expiration, the investor begins to take back some of the premium paid. Maximum profit on this trade is significant but limited to $30.46 if the stock drops all the way to zero at expiration.

On the other hand, the investor could lose a maximum of 54 cents per contract if the stock is still trading higher than the strike price at expiration. Return on risk for this bearish trade is 982% in the unlikely event that the stock is trading at zero at expiration.

A closer look at time and sales shows this put buyer tied the options trade to a stock position, which turns this directional play into a delta-neutral volatility bet. It looks like the investor bought roughly 171,000 shares for $34.80 per share. Tying stock to an options play could suggest the investor is more interested in betting that volatility will expand during the near term.

Analysts expect DIS to announce earnings of 58 cents per share this afternoon. Shares of the entertainment company dropped 17 cents to $35 during morning trading. The stock has recovered roughly 11% from a recent low of $31.30 at the beginning of July.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Options
Referenced Stocks: DIS

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Karla Yeh

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