Is The Worst Behind For Walt Disney Co (DIS)?

As far as Dow stocks go, Walt Disney Co (NYSE:DIS) has been a laggard over the course of 2016. In fact, with a YTD return of -5.81%, only Nike Inc (NYSE:NKE) has performed worse.

However, a hot new hedge fund is betting on a turnaround and the technicals seem to be backing up that story.

Business Insider recently ran an article detailing how Samantha Greenberg’s Margate Capital Management is betting that the worst is behind DIS and that the future looks bright. According to the article, “a spinoff could boost Disney’s stock to $147”.

Christian Bertrand /

Christian Bertrand /

Looking at the technical picture, Walt Disney Co (NYSE:DIS) has recently broken above the all-important 200 day moving average. Many fund managers refuse to touch a stock when it is below its 200 day moving average, so the recent breakout could mean more fund managers allocating cash to the stock.

The breakout and successful retest of this “line in the sand” metric is an extremely bullish technical signal.

DIS Chart

Some traders on Twitter were today looking at buying the Jan 2018 LEAP options.

Currently the Jan 19, 2018 $90 call option is trading around $13.50. Buyers of this call option would need to see DIS rally above $103.50 by expiry. This is only 4.6% above the current stock price.

Profits can also be made if DIS makes a decent move over the next few months.

The beauty of buying a LEAP option is that it is much cheaper than buying the stock outright and the risk is much less.

Investors buying 100 shares of stock would have $9,897 capital at risk in the trade, whereas buyers of the LEAP option would only be risking $1,350 for similar exposure.

A reasonable stop loss level would be if Walt Disney Co (NYSE:DIS) broke back below its 200 day moving average.

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Disclosure: I currently have no positions in DIS.

Note: This article is written by Gavin McMaster of Options Trading IQ.