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Bearish options in play as Disney shares drop after earnings

The Walt Disney Company (NYSE:DIS) – Just six weeks ago, shares in the operator of the happiest place on earth were hitting fresh all-time highs, peaking at $53.40 in the final week of September, on the heels of an impressive 40% rally since the start of 2012. More recently, however, the stock has been edging down off the September high, sliding roughly 6% ahead of Disney’s fourth-quarter earnings report released after the close on Thursday. Shares in Walt Disney Co. gave up another 5.75% today to trade at $47.17 just before midday on the East Coast after the company posted earnings in line with expectations and sales that missed analyst estimates. The final weeks of 2012 may see shares in Disney continue to pull back by the looks of activity in far out-of-the-money put options expiring in December. Some traders snapped up bearish contracts on DIS that may be profitable if shares slip to their lowest levels since May, purchasing around 1,000 puts at the Dec. $44 strike for an average premium of $0.58 apiece. Like-minded bears picked up roughly 400 puts at the lower Dec. $43 strike for an average of $0.40 apiece, and shelled out $0.29 per contract, on average, to buy more than 425 puts at the Dec. $42 striking price. Traders long the Dec. $42 strike puts stand ready to profit at expiration next month should Disney shares drop 11.5% from the current level to settle below an average breakeven price of $41.71.

The Walt Disney Company (NYSE:DIS)

Vera Bradley, Inc. (NASDAQ:VRA) – Fresh interest in Vera Bradley call options this morning suggests some traders are positioning for shares in the maker of handbags and accessories to rally as the 2012 calendar year draws to a close. The stock today trades down 2.5% to stand at $26.20 as of 11:30 a.m. ET. The jump in call activity arrives four weeks ahead of Vera Bradley’s third-quarter earnings report after the closing bell on December 6th. Perhaps strategists dabbling in upside calls anticipate strong gains in the price of the underlying post earnings. The Dec. $30 strike call is the most active contract changing hands on VRA this morning, with upwards of 1,100 lots in play at that strike versus open interest of just 13 contracts. It looks like most of the volume was purchased earlier in the session for an average premium of $0.78 apiece, thus positioning buyers to profit should shares in Vera Bradley surge 17.5% to exceed the average breakeven price of $30.78 by December expiration. Shares in the name last traded above $30.78 on October 25th.

Children’s Place Retail Stores, Inc. (NASDAQ:PLCE) – Investors in the specialty retailer of children’s apparel and accessories had a tough week, with shares in Children’s Place Retail Stores losing nearly 10% during the past three trading sessions to close at $56.16 on Thursday. Data released on Friday morning that showed consumer confidence at the highest level since 2007, however, saw shares in the retailer reverse some of the week’s losses during the first half of the trading day. PLCE shares are currently up better than 3.4% to arrive at $58.10 as of 12:15 p.m. in New York. Options traders positioning for the price of the underlying to extend gains next week picked up more than 1,100 calls at the Nov. $57.5 strike this morning for an average premium of $1.55 per contract. Call buyers stand ready to profit at expiration next week in the event that PLCE shares rally above a breakeven share price of $59.05. Intraday gains in the price of the shares find the price tag on the now in-the-money call options has increased more than 70% to $2.65 in early-afternoon trading. Upside calls may be attracting traders looking to position for gains in the stock price following the company’s third-quarter earnings report next Thursday.

Caitlin Duffy

Equity Options Analyst

The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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