on todays Options Action Dan Nathan layed out a Risk Reversal for Disney. here is the link to his video segment Nathan Disney trade . dan suggested you SELL the Jan 120 put for $1.20 and BUY the Jan 140 call for $2.20 for about $1 total debit.. the put premium offsetting some of the cost of the call. I don't follow Disney closely but did some put sales few months back. in general I prefer Call Spread risk reversals in order to have near zero cash outlay for the trade. so using Dans strikes and thesis I instead would do (after hours etrade prices):
Sell Jan 120 put for $1.12 credit
Buy the Jan 140/150 call spread for $1.55 debit
Total cost would be 47cents or so for the 3legs... at January expiration you have profits from 140-150ish and only risking .47 if stock is 120-140 at Jan opex
Mark to market dans setup profits right away if the stock moves up after earnings and loses if move down vs my call spread risk reversal that will show profits closer to opex.
my gut says to not enter this trade. dans thesis seems legit once the streaming service gets going but again my gut says to wait until that gap fills. would assume that if the earnings are poorly received and the stock breaks 128ish then 120 seems to be a foregone conclusion. if that happens the put premiums will be juiced and THEN could put on a call spread risk reversal. especially if the stock tanks in one big whoosh. I will keep on watch list for that event. the whoosh to low 120s brings the defenders onto CNBC with the but...but...the streaming service..the Mandalorian ...etc
the trade goes out a bit far out for my taste based on the next weeks earnings. not mentioned on air is you should have the buying power to buy the stock at 120 since you are selling a put. a pullback to fill that gap would get me looking to reenter somehow though.
If you are really determined to enter dans trade and agree with the thesis and strikes, consider also selling the Nov8 weekly 140call for about .40credit turning it into a calender spread as well for earnings. brings your cost basis down further. I don't wish bad things on stocks but a whoosh down would be a higher probability entry for my current trading style.
