Tuesday, April 19, 2011

Trade of the Day: Walt Disney bearish put vertical

The Trade
A trader sold 4,000 May $37 puts at $0.16 and bought 4,000 May $40 puts at $0.63 for a debit of $0.47 or $188,000.

As you can see from the graph above, the spread profits from a decrease in the underlying stock before expiration. The max risk is limited to the debit, and the max profit potential is capped at an underlying stock price of $37 and lower. The max profit for the put vertical is $1,012,000. The break even underlying stock price is $39.53. DIS closed today at $41.35.

The line shown above is the break even price. The chart is the Walt Disney daily stock chart. DIS last traded below the break even underlying stock price on February 1st, 2011. Around the time of the trade, it was announced that ESPN (owned by Walt Disney) announced that it had lots its bid for NHL coverage and is dropping poker coverage. Walt Disney also announced a deal with Amazon's Lovefilm this morning.

Walt Disney traded 17,611 contracts today compared to average daily volume of 18,009. Walt Disney will report earnings on May 10th.

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

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