Disney - Straddles going into Earnings?
Hey Traders! Disney is reporting earnings today after market close. There really isn't much technical analysis can do to determine what outcome the report will have on the stock price. But I will say this... Disney's stock showed decent price appreciation in the last two and a half weeks going from lows of $117.23 per share to highs of $147.68 per share. Although Disney is off it's highs, the current trading price of Disney's stock is $135, which is still above its 8 day exponential moving average. Whether Disney meets, beats, or misses analysts estimates for this quarter's EPS and Revenue, the option prices are a big move for Disney. A look at the "At The Money" straddles (at the 135 Strike, expiring tomorrow) show they are trading for nearly $600.
Which means Disney would need to move up or down by $6.00 per share just to break even. Right? But wait...
Keep in mind that option prices are also made up of premium.. which consists of time value and implied volatility. Implied Volatility is considered a measurement of the perceived risk for an individual option contract. That risk is then priced into that option as a premium. Usually, implied volatility is at its highest before anticipated earnings reports or company news announcements. The day after the news is made public, implied volatility usually drops, which can drastically lower options prices.
In reality, you would need more than a $6.00 per share move in Disney stock considering. I say this because there is nothing more frustrating than seeing you were right on the expected move, but lost money on the option because you forgot to consider the effects of implied volatility.
Now, grab your favorite drink, sit back and watch Disney's stock after the bell as they are expected to report 5 minutes after market close.
REMEMBER: Reference to specific securities should not be construed as a recommendation to buy, sell or hold that security. Specific securities are mentioned for educational and informational purposes only. YouCanTrade is an online media publication service which provides investment educational content, ideas and demonstrations, and does not provide investment or trading advice, research or recommendations.
Which means Disney would need to move up or down by $6.00 per share just to break even. Right? But wait...
Keep in mind that option prices are also made up of premium.. which consists of time value and implied volatility. Implied Volatility is considered a measurement of the perceived risk for an individual option contract. That risk is then priced into that option as a premium. Usually, implied volatility is at its highest before anticipated earnings reports or company news announcements. The day after the news is made public, implied volatility usually drops, which can drastically lower options prices.
In reality, you would need more than a $6.00 per share move in Disney stock considering. I say this because there is nothing more frustrating than seeing you were right on the expected move, but lost money on the option because you forgot to consider the effects of implied volatility.
Now, grab your favorite drink, sit back and watch Disney's stock after the bell as they are expected to report 5 minutes after market close.
REMEMBER: Reference to specific securities should not be construed as a recommendation to buy, sell or hold that security. Specific securities are mentioned for educational and informational purposes only. YouCanTrade is an online media publication service which provides investment educational content, ideas and demonstrations, and does not provide investment or trading advice, research or recommendations.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.