Do you know the price movement of DIS can be predicted?
We'll show you how to predict the range of price fluctuations and profit 40% a month from options.
Why Invest in Disney Stocks?
Disney reminds us of unique theme parks loaded with famous cartoon characters such as Mickey Mouse, Donald Duck, Goofy from the past, to the more recent Elsa and Anna from the Frozen franchise, and Woody and Buzz Lightyear from Pixar's Toy Story. Disney is full of priceless characters and is a leader in merchandising cartoon copyrights.
The century-old Walt Disney Company has accumulated a huge porfolio of mass media, content creation and distribution channels over the years, and has recently diversified into online streaming with Disney+ to compete head on with Netflix.
The reputation of Disney allowed DIS to be included in S&P 500 index since 1976.
Fair Value of Disney Shares
The quickest way to determine the fair value of DIS stock is to reference data from Trefis. This is accessible in TD Ameritrade in the Analyse tab and Fundamentals. Scroll to the bottom of the page to look at Trefis estimate for the true value of Disney stock.
Trefis calculates Disney's valuation through the following metrics:
- Media distribution channels such as Disney Channel and American Broadcasting Company
- Direct to consumer online streaming channels such as Disney+ and ESPN+
- Disney theme parks, hotels and merchandise
- Disney Studios
Trefis estimates Disney's fair value to be $180, which is similar to the current market price. So we expect the stock price to remain neutral in the near future.
How to Predict Disney Stock's Price Moves
Once we learn how to predict the price movement of a stock, we can profit from trading options to the fluctuations. We can use TD Ameritrade's TTM Squeeze analysis tool, to compare the recent price changes with historical data:
- Blue bar indicates strong upward momentum
- Dark blue indicates weak upward momentum
- Red bar indicates strong downward momentum
- Yellow bar indicates weak downward momentum
Since TTM Squeeze indicates a blue bar right now, we expect fluctuations in Disney stock price to dampen, and expect Implied Volatility (IV) to contract soon.
So we can sell options immediately, and then close the trade in the future when options prices drop due to IV contraction.
43% Return in a Month From Trading Options
Since we believe DIS will stay quite stable in the near future, we can sell an Iron Condor, based on the Options Scanner, to define a range of profitability:
- We sell a $170 Put and a $195 Call to define the profit range
- Then buy a further $165 Put and a $200 Call to cap the maximum loss
After visiting the DIS Trade tab in TD Ameritrade:
- Browse to options that expire next month
- Right-click to SELL Iron Condor at $170
- Adjust Qty to 1
- SELL 195 Call
- BUY 200 Call
Then we can right-click Analyse this trade.
This trade has 55% chance of profit, and uses $347 Buying Power for a maximum profit of $153. So the maximum Return on Capital is 43%.
If the stock price does not exceed our short options after a month, all 4 options will expire worthless, and we will collect $153 premium.
If we compare trading stocks with trading Iron Condors, we can see trading stocks only has 50% Probability of Profit, while it also requires a big move in the underlying to have a big return.
|Trade Method||Stocks||Sell Iron Condor|
|Market direction||Upward||No matter rise or fall|
(Price stays within range of short options)
|Probability of Profit||50%||55%|
|Maximum return||Return correlates to size of move||43%|
By trading an Iron Condor, you can be profitable no matter the stock rises or falls, and be profitable while the price stays within the short options. The maximum profit can exceed 40%.
Now is your turn to try the strategy we discussed today. Please leave a message below if you want me to analyse other popular stocks.