In early February Dan previewed Disney (DIS) earnings and detailed some inexpensive directional trade ideas, both bullish and bearish. At the time DIS was about 112 and has moved around a bit since the initial post but basically has stayed within a 110-115 range. The bullish trade was mildly bullish, targeting a move towards 115 in February and looking for more upside after. Here was that trade idea, from Feb 5th:
Bullish Trade Idea: DIS ($112) Buy Feb 15th / April 115 call calendar for $2
-Sell to open 1 Feb 115 call at 80 cents
-Buy to open 1 April 115 call for $2.80
Because the stock hasn’t moved very much, and certainly hasn’t exploded to the upside, this was the correct bullish strategy so far. With the stock now 114.15, and with the short Feb calls expired (worthless), the position is now just the April 115 calls, currently trading 2.75 for gains of .75 from the initial cost. As you can probably see, the entirety of those gains came from the short Feb calls, with the April calls actually down .05 due to time decay and vol coming in.
But those calls are still out of the money, so for those in this position it now makes sense to play a little defense with position to account for decay possibility on the current profits.
There are two places to look here, one would be continuing it as a calendar and looking to sell March calls, the other is to turn the April calls into a call vertical. Which depends on bullishness near term. For those thinking 115 is serving as a bit of resistance lately, selling the March 115 calls make sense. They’re currently trading about .85, which would reduce the overall cost of the position to just 1.15. Obviously 115 isn’t too far away so this is fairly aggressive for the next 2 weeks. But on any sideways or down move near term this would save alot as those will quickly go to zero with the stock here or lower. It could then be further spread if those short March calls expire worthless.
The other play is to sell the April 120 calls, about the same price, at .88. This creates a vertical and reduces overall risk to 1.12 and allows for more upside in the next two weeks. Of course it has less optionality than than the calendar roll as it either gets above 116.12 and makes money or it doesn’t and becomes a loser. So that’s clearly the more aggressively bullish roll out to April.