Disney delivers bad news for put sellers

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Some investors sold protection on Walt Disney yesterday, and they'll feel the pain today.

optionMONSTER's tracking systems detected the sale of more than 11,000 May 42 puts yesterday for $0.22 to $0.28 against open interest of just 3,732 contracts. At least 7,000 June 39s were also sold, mostly for $0.17 to $0.19. Volume was more than triple open interest in both strikes.

Overall option volume in the media giant was 11 times greater than average. The mix of activity was bullish, with most puts sold and the majority of calls purchased.

Traders will likely be taking losses on those bets when the market opens today because DIS released weak fiscal second-quarter earnings after the bell. Profit and revenue both missed forecasts because of poor movie attendance.

That was a rude surprise following 1-1/2 years of strong reports, and caused DIS to drop by about 3 percent in extended trading. The shares had risen 1.88 percent to $43.91 in the normal session, within a few cents of an all-time high, but fell 2.41 in after-hours trading.

The put sellers will likely experience a quick hit to their positions, but if DIS holds its ground until expiration their bets will still pay off. They're essentially hoping that shares remain above or close to the strike prices. Call buyers will experience sharper losses.

Despite the miss, the earnings report showed strength in television advertising, which follows a trend also witnessed by Time Warner and CBS. Theme-park attendance also rose.



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

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This article appears in: Investing , Options

Referenced Stocks: DIS

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