Earnings Trade of the Day (DIS) 2.7.2012

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Reason I like this Trade:  Disney reports earnings after the bell today and I am bullish on their earnings.  Their earnings are on track for $.71 on $11.19 Billion in revenue, and I do not want to fight the trend which is higher in Disney. There is immediate support at $39 and even though there is a resistance pivot level at $40.75, I think that Disney can rip to the upside, climbing to its May highs of $44.

They should benefit from an economic recovery even though the ESPN viewer-ship from the BCS games has been down year over year, I think Disney will beat on earnings and climb higher.  There is a 5% implied move and Disney has moved over 6% on each of the last 4 quarters.
In the options front, Calls have out traded the Puts on a 3 x 1 ratio.  In this strategy I want to buy the March 41-43 Call Spread for $.70.  I usually like to trade the front month options, but with the volatility being so cheap the March Call Spread is only $.10 higher than the Feb Call Spread and it gets me an extra 4 weeks of time.  This spread can be worth $2 giving me a 2×1 risk vs reward payout.

If you have any questions please email me at andrew@keeneonthemarket.com.

UPDATE 2.8.2012 I did not like the way that Disney was acting last night, so I was happy that it got a POP today.  This was a one day trade for me, like most earnings are.  I sold this spread out for $.86 and paid $.72, so that is good for a 20% gain overnight. Taking profits and moving on to the next trade.  

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