Walt Disney Co (DIS)

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Disney Put Options Signal Major Upside For Value Investors
By: Barchart | December 2, 2022

Disney Inc. (DIS) put options are trading at levels that are attractive to value investors for their potential returns to income-oriented investors. Disney put option premiums that are one month in the future also imply a good upside for DIS stock.

Disney stock has tumbled over 37% in the year-to-date (YTD) period and is actually down 9.1% in the past month, despite the change in CEOs. On Nov. 20, Bob Iger was rehired as CEO by the board of directors and since Nov. 18 DIS has risen from $91.64 to $98.59 as of Dec. 1. That is a gain of just 7.58%.

Disney's Valuation

Meanwhile the stock's valuation, at 23.6x forward earnings for the year ending Sept. 30, 2023, makes DIS stock look fairly interesting. For example, in the last 5 years, the stock has sported an average forward price-to-earnings (P/E) multiple of 37.7x, according to Morningstar. So, just to get back to its historical mean, DIS stock could rise another 59.7%.

Even if it rose by one-quarter of that rate, based on the moves that Bob Iger is making to right the ship at Disney, DIS stock could rise by 14.9% to $113.30. This sets a good price target for value investors in the near term.

Shorting DIS Stock Puts To Create Income

Disney does not presently pay a dividend to its shareholders. By shorting out-of-the-money cash-secured puts, value investors can create income and potentially buy DIS stock an at even more attractive price.

For example, Jan. 6, 2023, put option premiums, which are just 35 days out in the future have put option premiums at $90.00 trading for $1.06, as of Dec. 1.


DIS Puts - Jan. 6, 2023 expiration - Barchart - As of Dec. 1, 2023

This means that for an investor who puts up $9,000 in cash with their brokerage firm, they can receive $106 when shorting a $90.00 strike price put for expiration on Jan. 6. That works out to a 1.18% yield on an immediate basis. Moreover, over 12 months, if this type of trade could be repeated, the annualized return is about 14%.

That is a very good return for most investors. Moreover, if the stock falls to $90.00 or below by Jan. 6, the investor will buy the shares at a price that is 8.7% below today's price. This makes it a pretty good entry point for value investors.

However, if DIS stock rises, the investor cannot make a capital gain. That is why it might make sense to wait and see if DIS moves up closer to the $113 target price mentioned above and then sell covered calls then when it reaches a price closer to that level. It probably doesn't make sense to do that just yet, as there seems to be a high likelihood that DIS stock could rise in the near term.

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