Trade Alert – (DIS) June 21,2012

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.

Trade Alert – (DIS)

Sell the Walt Disney Co. (DIS) October, 2012 $38-$41 Call Spread at $2.75 or best

Closing Trade

6-21-2012

expiration date: October 19, 2012

Portfolio weighting: 25% = 100 contracts

This was a bet that the Walt Disney shares (DIS) would not trade under $40.60 by the October 19 expiration, or down $6.00 from here. That is at the April low, and down 17% from today’s price.

I still love the Magic Kingdom. It will continue to soak me for tens of thousands of dollars in coming decades as I take kids and grand-kids there for $85 a pop. But I think another wave of “RISK OFF” liquidation is imminent, and I don’t want to take a chance that the stock becomes the baby that gets thrown out with the bathwater.

The longer dated nature of this position makes it particularly sensitive to any market gyrations. So I am taking my decent profit here and heading to the sidelines. “Derisking” my portfolio here means that I have plenty of dry powder to shop for bargains at the next market bottom.

Walt Disney has one of the world’s great consumer franchises, and seems to be going from strength to strength. It is the type of high quality stock that investors will flock to in these uncertain times, although the dividend is nothing to write home about.

Don’t place a market order for this trade or the floor traders will rip your eyes out. Don’t place individual orders for the legs either. Instead, place a limit day order in the middle market for the call spread only around $2.60, and wait for the market to come to you. It will find you. If nothing happens, you can always walk your limit order up five cents at a time until you get done.

Spreads can be wide on the deep out of the money $38 calls. There’s no rush to do this, but if you get filled today you can capture the extra sweetener of the time decay over going into the summer slowdown.

These are the trades you should execute:
Sell the October, 2012 (DIS) $38 calls at …. …….……$10.25
Buy to cover the October, 2012 (DIS) $41 – calls at…. $7.50

Net Cost:…………………………………………………$2.75

Profit calculation

Value at Expiration ($41 – $38) $2.75
Cost: $2.60
Profit: $0.15

(100 X 100 X $0.15) = $1,500, or 1.50% for the notional $100,000 portfolio.

Thanks Mickey!