What are your options - Disney earnings trades

• While the exact figures for Disney’s forthcoming earnings release are not yet known, historical data suggests significant shifts in implied volatility (IV) and implied volatility rank (IVR) following the announcement.
• Past earnings releases have typically resulted in a decrease in both IV and IVR. For instance, on August 9, 2023, Disney experienced a 29.46% drop in IV and a substantial 71.31% reduction in IVR post-earnings.
• Disney’s stock price has also shown volatility in response to earnings releases. On May 10, 2023, the stock price fell by 8.73%, while on August 9, 2023, it rose by 4.88%.
• The expected move is a crucial element to consider when planning options trades. As of November 7, 2023, the expected move for the November 10, 2023 expiry is + or - $4.80 (5.71%).
• These historical trends can inform your options trading strategies. In anticipation of a large decrease in IV and IVR, all eight trade setups presented in this article are designed as short volatility strategies to profit optimally of that options price reduction that occurs after an earnings release. It is your outlook that determines which strategy to choose.

Please note that these observations are based on historical data, and actual outcomes may vary. It’s important to consider a range of factors when planning options trades.

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

• Bullish strategies

  • Short (naked) Put
  • Short/Credit Put Vertical Spread
  • Short/Credit Put Broken Wing Butterfly
     

• Neutral / range bound strategies

  • Short Strangle
  • Short Iron Condor
     

• Bearish Strategies

  • Short (naked) Call
  • Short/Credit Call Vertical Spread
  • Short/Credit Call Broken Wing Butterfly

Bullish Strategies

Short put on Disney (DIS)

• Underlying Stock: DIS:xnys, Last Traded at $84.12
• Options Details:
  • Sell to Open 1x 83 Put, 10-Nov-2023, Bid/Ask: 2.01/2.03, Delta: -0.4071
• Trade Setup: Type: Limit, Quantity: 1, Price (Credit): 2.02 USD, Duration: Day Order
• Financials:
  • Premium (Credit): 202.00 USD
  • Margin Impact: 581.80 EUR
  • Max Risk: -8,098.00 USD
  • Max Profit: 202.00 USD
  • Breakeven: 80.98 USD
    
    
• This trade involves selling a put option with a strike price of $83, expiring on the 10th of November, 2023, which credits the seller $202, suggesting a neutral to bullish outlook on the stock. The breakeven point for this trade is $80.98. The maximum risk is significant at $8,098 compared to the maximum profit of $202, which is characteristic of naked short put strategies.
• A word of caution: this is an undefined risk strategy, and should only be done if you have enough experience: the expiry date is only 3 days away, max profit compared to margin impact is very advantageous. However if the stock moves below your breakeven, losses can quickly rise well above the margin impact and could be substantial! Be sure to know how to adjust (roll down and/or roll out) or set strict stop-losses.

Put Credit Spread on Disney (DIS)

• Underlying Stock: DIS:xnys, Last Traded at $84.17
• Options Details:
  • Sell to Open 1x 83 Put, 10-Nov-2023, Bid/Ask: 2.00/2.02, Delta: -0.4040
  • Buy to Open 1x 78 Put, 10-Nov-2023, Bid/Ask: 0.49/0.50, Delta: -0.1451
• Trade Setup:
  • Type: Limit, Quantity: 1, Price (Credit): 1.51 USD, Duration: Day Order
• Financials:
  
  • Premium (Credit): 149.00 USD
  • Margin Impact: 275.00 EUR
  • Max Risk: -351.00 USD
  • Max Profit: 149.00 USD
  • Breakeven: 81.51 USD
    
    
• The strategy involves selling an 83 put and buying a 78 put with the same expiration date, resulting in a net credit of $149. The breakeven point is $81.51. This trade has a defined risk of $351 and a defined profit of $149, characteristic of a credit spread that suggests a neutral to bullish outlook on the stock.

Put Broken Wing Butterfly (BWB) on Disney (DIS)

• Underlying Stock: DIS:xnys, Last Traded at $84.22
• Options Details:
  
  • Sell to Open 2x 88 Put, 10-Nov-2023, Bid/Ask: 4.90/5.00, Delta: -0.6927
  • Buy to Open 1x 92 Put, 10-Nov-2023, Bid/Ask: 8.10/8.20, Delta: -0.8566
  • Buy to Open 1x 80 Put, 10-Nov-2023, Bid/Ask: 0.92/0.93, Delta: -0.2367
• Trade Setup:
  
  • Type: Limit, Quantity: 1, Price (Credit): -0.87 USD, Duration: Day Order
• Financials:
  
  • Premium (Credit): -87.00 USD
  • Margin Impact: 272.90 EUR
  • Max Risk: -313.00 USD
  • Max Profit: 487.00 USD
  • Breakeven: 83.13 USD
    
    
• This strategy includes selling two 88 puts, buying one 92 put, and buying one 80 put, all with the same expiration date. The net credit received is $87, with a breakeven point of $83.13. The maximum risk for this trade is $313, while the maximum profit is $487, which would be achieved if the stock ended this week's trading session at $88, a price that is around the expected move (+/- $4.80).

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Neutral / Range Bound Strategies

Short Strangle on Disney (DIS)

• Underlying Stock: DIS:xnys, Last Traded at $84.27
• Options Details:
  
  • Sell to Open 1x 90 Call, 10-Nov-2023, Bid/Ask: 0.76/0.78, Delta: 0.2143
  • Sell to Open 1x 80 Put, 10-Nov-2023, Bid/Ask: 0.93/0.95, Delta: -0.2382
• Trade Setup:
  
  • Type: Limit, Quantity: 1, Price (Credit): 1.68 USD, Duration: Day Order
• Financials:
  
  • Premium (Credit): 168.00 USD
  • Margin Impact: 474.78 EUR
  • Max Risk: Infinite
  • Max Profit: 168.00 USD
  • Breakeven Points: 78.32 USD, 91.68 USD
    
    
• This strategy involves selling a call and a put at different strike prices, both with the same expiration date, resulting in a net credit of $168. The breakeven points are $78.32 and $91.68, and while the maximum profit is capped at the premium received, the maximum risk is theoretically infinite because the stock price can potentially rise indefinitely.
• A word of caution: this is an undefined risk strategy, and should only be done if you have enough experience: the expiry date is only 3 days away, max profit compared to margin impact is very advantageous. However if the stock moves outside of your breakeven-points, losses can quickly rise well above the margin impact and could be substantial! Be sure to know how to adjust (roll down/up and/or roll out) or set strict stop-losses. Also take into account that margin impact can fluctuate if the prices move nearer to the strike prices during the course of their life-span.

Short Iron Condor on Disney (DIS)

• Underlying Stock: DIS:xnys, Last Traded at $84.26
• Options Details:
  
  • Buy to Open 1x 95 Call, 10-Nov-2023, Bid/Ask: 0.22/0.23, Delta: 0.0771
  • Sell to Open 1x 90 Call, 10-Nov-2023, Bid/Ask: 0.76/0.78, Delta: 0.2140
  • Sell to Open 1x 80 Put, 10-Nov-2023, Bid/Ask: 0.93/0.95, Delta: -0.2397
  • Buy to Open 1x 75 Put, 10-Nov-2023, Bid/Ask: 0.17/0.18, Delta: -0.0619
• Trade Setup:
  
  • Type: Limit, Quantity: 1, Price (Credit): 1.30 USD, Duration: Day Order
• Financials:
  
  • Premium (Credit): 130.00 USD
  • Margin Impact: 191.18 EUR
  • Max Risk: -370.00 USD
  • Max Profit: 130.00 USD
  • Breakeven Points: 78.70 USD, 91.30 USD
    
    
• This strategy involves selling a call and a put and then buying a further out-of-the-money call and put to limit risk, with the same expiration date. The net credit received is $130. The breakeven points are $78.70 and $91.30. This trade has a defined risk of $370 and a potential profit of $130, characteristic of an iron condor strategy that suggests a neutral outlook on the stock.

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Bearish Strategies

Short Call on Disney (DIS)

• Underlying Stock: DIS:xnys, Last Traded at $84.26
• Options Details:
  
  • Sell to Open 1x 90 Call, 10-Nov-2023, Bid/Ask: 0.77/0.78, Delta: 0.2145
• Trade Setup:
  
  • Type: Limit, Quantity: 1, Price (Credit): 0.77 USD, Duration: Day Order
• Financials:
  
  • Premium (Credit): 77.00 USD
  • Margin Impact: 447.02 EUR
  • Max Risk: Infinite
  • Max Profit: 77.00 USD
  • Breakeven: 90.77 USD
    
    
• This strategy involves selling a call option with a strike price of $90, expiring on the 10th of November, 2023. The seller receives a credit of $77, indicating a bearish outlook on the stock. The breakeven point for this trade is $90.77. The maximum risk is theoretically infinite because the stock price can potentially rise indefinitely, whereas the maximum profit is capped at the premium received.
• A word of caution: this is an undefined risk strategy, and should only be done if you have enough experience: the expiry date is only 3 days away, max profit compared to margin impact is very advantageous. However if the stock moves above your breakeven-point, losses can quickly rise well above the margin impact and could be substantial! Be sure to know how to adjust (roll down/up and/or roll out) or set strict stop-losses. Also take into account that margin impact can fluctuate if the price moves near to the strike price during the course of its life-span.

Call Credit Spread on Disney (DIS)

• Underlying Stock: DIS:xnys, Last Traded at $84.20
• Options Details:
  
  • Sell to Open 1x 86 Call, 10-Nov-2023, Bid/Ask: 1.89/1.92, Delta: 0.4145
  • Buy to Open 1x 91 Call, 10-Nov-2023, Bid/Ask: 0.59/0.61, Delta: 0.1762
• Trade Setup:
  
  • Type: Limit, Quantity: 1, Price (Credit): 1.32 USD, Duration: Day Order
• Financials:
  
  • Premium (Credit): 132.00 USD
  • Margin Impact: 262.71 EUR
  • Max Risk: -368.00 USD
  • Max Profit: 132.00 USD
  • Breakeven: 87.32 USD
    
    
• This strategy involves selling a call option with a strike price of $86 and buying a call option with a strike price of $91, both expiring on the 10th of November, 2023. The trader receives a net credit of $132 for entering this trade. The breakeven point is $87.32. The maximum risk is $368, and the maximum potential profit is the premium received of $132. This trade setup suggests a bearish to neutral outlook on the stock.

Call Broken Wing Butterfly (BWB) on Disney (DIS)

• Underlying Stock: DIS:xnys, Last Traded at $84.29
• Options Details:
  • Sell to Open 2x 80 Call, 10-Nov-2023, Bid/Ask: 5.20/5.30, Delta: 0.7653
  • Buy to Open 1x 76 Call, 10-Nov-2023, Bid/Ask: 8.50/8.65, Delta: 0.9181
  • Buy to Open 1x 88 Call, 10-Nov-2023, Bid/Ask: 1.24/1.27, Delta: 0.3091
• Trade Setup:
  • Type: Limit, Quantity: 1, Price (Credit): -0.90 USD, Duration: Day Order
• Financials:
  • Premium (Credit): -90.00 USD
  • Margin Impact: 273.05 EUR
  • Max Risk: -310.00 USD
  • Max Profit: 490.00 USD
  • Breakeven: 84.90 USD
    
    
• This strategy includes selling two 80 calls, buying one 76 call, and buying one 88 call, all with the same expiration date. The net credit received is $90, with a breakeven point of $84.90. The maximum risk for this trade is $310, while the maximum profit is $490, which would be achieved if the stock ended this week's trading session at $80, a price that is around the expected move (+/- $4.80).

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