Walt Disney Co (NYSE:DIS) is all set to report its earnings on Tuesday. Many investors and analysts believe that Walt Disney Co (NYSE:DIS) would be able to beat the expectation hands down, mainly due to the fact that they had a very successful 2014 with their movies. Meanwhile, CNBC contributor, Michael Khouw had his attention shifted to a monster bet on Walt Disney Co (NYSE:DIS) options and he dissected the bet in CNBC’s Options Action.
Khouw pointed out that Walt Disney Co (NYSE:DIS) traded about 2 times the average call volume on Monday, which clearly showed the positive hopes on the stock for many investors. He pointed at a trade, in which the trader purchased a March 13th 92.5/95 one by two call spread.
Khouw dissected this trade and explained the details of it. He said that the trader bought the 92.5 calls at slightly higher than 2500 times and spend about $2.10 on each of those options. He added that the trader sold two of the 95 calls. He said that the trader has basically spend no money to do this trade. He added that according to the trade, the trader is trying to double the money above $95 on the Walt Disney Co (NYSE:DIS) stock. He pointed out that when the stock goes above $97.5, the profits will reduce, but that will mean that Walt Disney Co (NYSE:DIS) has hit an all-time high.
He feels that the trader is betting on the upside without taking incremental risk on the downside.
“One of the more interesting trades was the purchase of the March 13th 92.5/95 one by two call spread. What did they do? They bought the 92.5 calls 2500 times, actually a little bit more than that, spend about $2.10 on each of those options and then sold two of the 95’s against it for $1.05. So Basically they spend no money to put this on and probably against an already long stock position. Basically what this trade like this does is, it will juice those returns, essentially they are going to double the returns from $92.5 to $95, that appears to be the price of their target. Above $97.5 the profits will trail off, issue though ofcourse is that would be an all-time high for Disney. So looks like they are betting to the upside without taking any incremental downside risk,” Khouw said.
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