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Walt Disney Co. (NYSE: DIS) shares are trading about $1 higher after the company reported a second-quarter profit of $1.13 billion or $0.58 per share, beating analysts' estimates of $0.51 per share. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on DIS.
After hitting a one-year high of $36.79 last May, the stock hit a one-year low of $26.30 in January. DIS opened this morning at $34.21. So far today the stock has hit a low of $34.05 and a high of $34.95. As of 11:45, DIS is trading at $34.92, up $1.19 (3.5%). The chart for DIS looks neutral and deteriorating slightly, while S&P gives the stock its highest 5 Stars (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $30 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just two and a half months as long as DIS is above $30 at July expiration. Disney would have to fall by more than 14% before we would start to lose money. Learn more about this type of trade here.
DIS hasn't been below $30 by more than a few cents since January has shown support around $32 recently. This trade could be risky if the slowing US economy starts to hurt DIS more, but even if that happens, that position could be protected by support the stock might find just at $30, where it bottomed out in the past month.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in DIS.
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