New Trade Alert for DISNEY
Buy DIS July $105 Call @$12.00 or less
Risk Rating: 2.5 (1 = lowest 5 = highest)
Above Break Even Probability: 49%
Max Loss Probability: 19%
Stock boom has major market up 20% from the December lows. The recovery rally reminds us that the boom has been almost ten years with more room to go.
DOW is now just 4% from the record top after a 5000 point drop.
A “V” recovery targets 32K, 20% above in Blue Chips if new highs are made as seen every time in market history so far…
Not all DOW stocks have been darlings in the last four years. In fact DISNEY has been stuck between $90 and $120 over the time of the DOW drive higher.
House of Mouse is up only 2% compared to 20% DOW rise in the last two years.
Disney long call options can provide the staying power in a potential larger trend extension. More importantly, the maximum risk is the premium paid for buying the option.
The Options Way: Unlimited Upside Potential with Limited Risk
One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.
Choosing an option can sometimes be a daunting task with all of the choices and expiration months. Simply put, traders want to buy a high probability option that has enough time to be right.
The option strike price is the level at which you have the right to buy without any obligation to do so. In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.
There are two rules options traders need to follow to be successful.
Rule One: Choose an option with 70%-plus probability. The Delta is a measurement of how well the option reacts to movement in the underlying security.
It is important to buy options that payoff from only a modest price move. There is no need to ONLY make money on the all but infrequent price explosion.
Make money on modest moves in stocks with the right options.
Any trade has a fifty/fifty chance of success. Buying options ITM options increase that probability. That Delta also approximates the odds that the option will be In The Money at expiration.
Buying better options is more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.
With DIS trading at $114.50, for example, an In The Money $105 strike option currently has $9.50 in real or intrinsic value. The remainder of any premium is the time value of the option.
Rule Two: Buy more time until expiration than you may need — Time is an investor’s greatest asset when you have completely limited the exposure risks.
Traders often buy too little time for the trade to develop. Nothing is more frustrating than being right but only after the option has expired premature to the market move.
Trade Setup: I recommend the DIS July $105 Call at $12.00 or better.
The $105 option strike level is the midpoint pivot of the four year range and gives you the right to buy shares at a big discount and below annual low. This In The Money option gives you the right to buy the stock with absolutely limited risk.
The July option has four months of time for bullish development.
The maximum loss is limited to the $1200 or less paid per option contract if DIS is below $105 the third Friday in July of 2019. A stop loss could be placed at half of the premium paid for money management purposes.
The upside, on the other hand, is unlimited. The In The Money option has a delta of 80% so it will behave much like the stock for a fraction of the cost of owning the shares.
The trade expiration break even is at $117.00 or above at expiration ($105 strike plus $12 option premium).
The large long term price objective is $150 on a range breakout. A modest move above the $120 top would start the profit push.