There is a lot going on at Walt Disney Co (NYSE: DIS ) right now. A $52 billion deal with 21st Century Fox, a $220 million opening weekend for Star Wars: The Last Jedi , the looming launch of the Star Wars Galaxy's Edge theme park expansion in Disney World and the all but certain passage of the Republican tax plan. It's no wonder Walt Disney stock has been so bullishly volatile in the past month.
Given that Disney stock has jumped more than 13% since the beginning of November, much of this news has already been factored into DIS stock. There is one aspect, however, that I don't feel is being given enough weight … and it's not the fact that the Marvel franchise is finally fully owned by one company again - Spidey is finally home!
Prior to the 21st Century Fox deal, Disney owned 30% of the online streaming service Hulu. Alongside Netflix, Inc. (NASDAQ: NFLX ) and Amazon.com, Inc.'s (NASDAQ: AMZN ) Amazon Video, Hulu rounds out the top of America's new generation of "Big Three" broadcasters .
After acquiring quite a bit of 21st Century Fox's properties, Disney now controls 60% of Hulu, adding in Fox's 30%. That's a huge move for Disney, and gives the company control of an established streaming service that is more than capable of going head-to-head with Netflix and Amazon.
Click to Enlarge It also gives Disney another outlet for ESPN, if the company decides to include sports streaming on Hulu. As a result, the prospects for Walt Disney stock heading into 2018 just surged on this opportunity alone.
Turning to the sentiment picture for DIS stock, expectations don't appear nearly bullish enough. Currently, Thomson/First Call reports that 15 of the 30 analysts following Walt Disney stock rate the shares a "hold" or worse. Disney stock's 12-month consensus price target is also in need of a hike or two, as it currently rests at $111.27 - a discount to Friday's close.
Checking in with Walt Disney stock options traders, we find a fair degree of pessimism. Currently, the January 2018 put/call open interest ratio rests at 1.15. This ratio has pulled back from its early November reading of 1.78, indicating that DIS options traders are slowly moving toward the bullish end of the spectrum. A continuation of this trend could see Walt Disney stock follow suit and extend its current rally.
Overall, January 2018 implieds are pricing in a potential move of about 4.2% heading into expiration. This places the upper bound for Walt Disney stock near $11, while the lower bound lies near $106.
2 Trades for DIS Stock
Put Sell: As bullish as I am on Walt Disney stock's prospects, the shares are trading in overbought territory. As such, the short-term outlook could be stagnant or lower until bulls digest the wealth of news from the past month. Traders concerned about a period of consolidation before the shares move higher might want to consider a Jan 2018 $105 put sell.
At last check, this put was bid at 44 cents, or $44 per contract. As long as Walt Disney stock trades above $105 through expiration, traders pursuing this strategy will keep the $44 premium. However, if DIS trades below $105 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $105 per share. Given Walt Disney stock's prospects for 2018, this would be a solid price at which to own DIS should you be assigned.
Call Spread: Once again, Walt Disney stock has proven that it can still rally despite negativity and overbought conditions. If you are looking to ride a continued rally higher for DIS, a Jan 2018 $110/$115 call spread has potential.
At last check, this spread was offered at $2.05, or $205 per pair of contracts. Breakeven lies at $112.05, while a maximum profit of $2.95, or $295 per pair of contracts - a potential 44% return - is possible if Walt Disney stock closes at or above $115 when January 2018 options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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