Trade Ideas December 18, 2020

Trade Update: DIS Dec/Jan Call Calendar

by Dan

Back on Nov 12th prior to Disney’s (DIS) fiscal Q4 earnings results I detailed a bullish roll up in a call calendar in the stock:

With the stock just below $136, hours to earnings, just above the call strike it makes sense to adjust this position. This calendar that cost $2 when the stock was $125 can now be sold at $3.75 for a $1.25 gain. The implied move in the options market is about $5.75, a sharp move in either direction commensurate with that move would make this trade worth far less with 6 trading days until the short strike expires. I think it makes sense to roll this view up and out a little.

First by taking profits in the original trade:

ACTION: SELL TO CLOSE DIS ($135.70) NOV – JAN 135 CALL CALENDAR AT $3.75 FOR A $1.25 PROFIT

And

NEW TRADE IDEA: BUY TO OPEN DIS ($135.70) DEC – JAN 140 CALL CALENDAR FOR $1.25

-Sell to open 1 Dec 140 call at $4.25

-Buy to one 1 Jan 140 call for $5.50

With hours to December expiration, and the strike well into the money this trade idea should be cleaned up. With the stock at $174 the trade is a loser and should be closed now around 50 cents. If the trade was not closed with the short Dec strike so far in the money, then you would be assigned 100 shares short at $140, which is a loss of $34, but it is offset by the long Jan 140 call that is worth about $34.

Here is an example where I clearly overthought a bullish outlook in stock and did not use options to my advantage, I got too cute in an effort to minimize my premium outlay, a call or call spread would have resulted in a massive gain.

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