Options traders don’t seem convinced that Disney will be able to pull a rabbit out of its hat when it reports earnings after the bell on Thursday.
The entertainment giant finished Wednesday’s session solidly in the red despite Morgan Stanley reiterating its overweight rating and bumping its price target on the stock up to $210 from $200, and the options market is pointing to even more losses.
“We saw calls outpacing puts by [a ratio of] about 1.5-to-1,” Optimize Advisors CIO Michael Khouw said Wednesday on CNBC’s “Fast Money.” “That might normally sound bullish, but actually, that has averaged more than 2-to-1 over the last 20 days, so somewhat less bullish there. Right now, the options market is implying a move of about 4.5% [in either direction]. That’s somewhat more than what the stock has averaged over the last eight quarters.”
Traders continued to make solidly bearish bets on Disney during Wednesday’s session, even as the stock continued to fall throughout the day.
“Interestingly, the most active options [in Wednesday’s session] were the June 180-puts,” Khouw said. “More than 7,000 of those traded for an average price of around $7.10. Of course, the stock was trading down throughout the day, so ultimately they were paying closer to $8.60 for those, and buyers of those are obviously betting that the stock is going to fall after earnings and over the course of the next few weeks.”
Those contracts break even at an average stock price of $172.90, or just about 3% lower than where Disney closed Wednesday’s session.
Disney was trading about 1% higher in Thursday’s session.
