Disney (DIS) shares started running away from me after I went bullish in February. I’ve sold two sets of naked puts since then and have profited nicely on both, but could’ve done better by buying calls or even buying the shares. I started worrying that the price was getting ahead of itself recently. My thinking changed today when it dipped after their earnings release. I can’t find the negative in the earnings details yet. It looks like they beat estimates and have strong net income growth. These results don’t even include Iron Man III revenue.
The chart looks like it was possibly due for a slight reversion to the mean, maybe down to the 10-day moving average ($63.86) again or even the 20-day moving average ($62.39). Both moving averages are ascending and neither would mark much of a sell-off after such a strong few months. I decided to take a nibble into the stock again and have another order in place to add to my position on further weakness.
While DIS was trading at $65.03, I sold one DIS July $65 naked put for $2.11 and received $210.23 after paying $0.77 in commission. I almost made this trade closer to the open, when DIS was trading around $65.50, but saw it was sliding pretty quickly. I bit as it bounced around $65.00 and then saw it sink further for the next 20 minutes. I only sold one put because I wasn’t sure how low DIS would fall and figured I could add another put if it fell much more. Either way, I didn’t want to miss the opportunity in front of me at the time by not selling at least one call when I had the chance.
Around the time DIS bottomed, I entered a limit order for another put if the premiums hit $1.35. This contract was already trading for $1.30 by then. I should’ve realized that was a good enough return and made the trade at the time. It should work out for me either way. If the $1.35 limit order doesn’t hit, that’ll mean that DIS has regained its footing and my single naked put should finish out-of-the-money. If it falls further, I’ll sell a new put with a better return lined-up.
DIS Naked Put Risk/Reward Breakdown
- Potential profit: $210.23
- Potential return: 3.34%, 16.4% annualized
- Breakeven price: $62.90
- Downside protection: 3.28%
- Recent high: $66.09
- Cushion from recent high: 4.83%
- Expected support: Above $63.00, if not today’s low of $64.56
- Position close goal/limit: Plan to stick with it through expiration and take assignment for long-term hold.
As I’m finishing writing this around 2:00 pm, DIS is back up to $65.80 and the bid/ask for my put is $1.78/1.80. It looks like I should’ve sold at $2.30 when I had the chance. I’m happy to have made the single contract trade at a minimum.