Yesterday, I mentioned that I was planning to sell a new naked put on Disney (DIS) if the share price came down some more. When I saw the futures were down so much this morning, I raised my asking price from $1.90 to $3.50, just in case there was another stupid open that sent the shares down beyond reason again. That was too much to ask for and the bid/ask opened around $2.50/3.00 I think. I lowered my limit order to $2.90, but it took over a minute to get through the system. By then, the bid/ask was down to $2.25/2.75. I chased it and lowered my order to $2.60, then $2.40 and then one more time. While DIS was trading at $100.59, I sold one DIS October $95 naked put for $2.30 and received $299.57 after paying $0.43 in commission.
I don’t think the slowdown in ESPN’s subscribers is enough to bring DIS down 20% and keep it this low for very long. It could get pushed lower as the indexes go through their current shake out, but below $100 and certainly below $95 seems like a great buying opportunity to me.
My average cost per share is $109.97 from my August option assignment. If this October put is assigned, my average cost on the 200 shares will drop to $100.64. As I said above, I view the $100 area as a great entry point and I’m not concerned with a few weeks (or even months) of weakness. I’d love to see growth in ESPN subscribers during the fall with football season, but I recognize that this trend of viewers leaving cable companies might not be near the end yet. If nothing else, I’m loading up for a long-term hold, something I rarely do in this account.
DIS Naked Put Risk/Reward Breakdown
- Potential profit: $229.57
- Potential return: 2.84%, 18.66% annualized
- Breakeven price: $92.70
- Downside protection: 7.84%
- Recent high: $122.07 on 8/4/15
- Cushion from recent high: 24.06%
- Expected support: $95.79 was the low on Tuesday after the obscene low of $90.13 on Monday. I expect the $95-96 range to hold support. Worse case, I could see another short visit near $90.00. The two other days that bookmark that crazy Monday and Tuesday also saw intraday lows in the $96 range, which helps firm up that range for better support on a normal day, but we aren’t trading in normal days lately.
- Position close goal/limit: I’d have to see a major change in the fundamentals of DIS to exit my position before I have a good profit. Its P/E ratio is still above the average for the S&P 500, but I think it’s warranted. I might end up being long these shares for an extended period, but I’m comfortable with that.