High Stakes: Options Trader Places Bold Wager, Betting on Disney to Surge 10% Following Earnings Report

image
Investing / Thursday, 09 November 2023 01:20

"Berkshire Hathaway's weekend report unveiled impressive operating earnings of $10.76 billion, coupled with a record-breaking $157 billion in cash. While this signals success for Warren Buffett's ventures, it also sparks speculation about the investment team's preference for short-term treasury yields over stocks.

As we navigate through earnings season, the question arises: should we adopt a 'T-Bill and chill' approach? While maintaining a portion in short-term treasuries might be prudent (our long-only event fund currently holds 5% in cash), the focus remains on equities for potentially higher returns.

Looking ahead to the coming week, companies reporting earnings present intriguing opportunities. The options market indicates potential moves of 5% or more for the listed companies, with some highlighted in our event-driven long-only strategy. However, caution is advised as certain stocks, like Celsius and Hubspot, have seen substantial gains this year.

Amid the mix, Disney stands out. Trading at just over 17 times earnings, the company, grappling with changes in the streaming landscape, has strongholds in its parks and ESPN. An institutional options trader seems optimistic about an earnings-driven upswing, evidenced by significant purchases of the November $95/$100 call spread on Friday. This bold move suggests a bet that Disney could surge over 10% post-earnings.

While this approach might be considered a bit of a gamble, it aligns with the overall sentiment that Disney, currently around $85 a share, has the potential for a substantial post-earnings rally. The market awaits Wednesday's earnings report to see if this daring call spread pays off.

DISCLOSURES: (Long ILMN, TTWO, WBD) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX, OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer."

"In conclusion, the weekend report from Berkshire Hathaway highlighted robust operating earnings and a record cash reserve, prompting speculation about the team's stance on short-term treasury yields versus stocks. As we navigate through earnings season, the strategy of maintaining a portion in short-term treasuries is balanced against the quest for higher returns in equities.

Looking ahead to the coming week, the options market suggests potential volatility in companies reporting earnings, with cautious optimism regarding some names in our event-driven long-only strategy. However, the challenging valuation of certain stocks, despite their compelling growth narratives, raises concerns about chasing them at current levels.

Amidst these considerations, Disney emerges as a focal point. Trading at an earnings multiple of just over 17, the company faces uncertainties in the streaming landscape but maintains strengths in its parks and ESPN. The bold move by an institutional options trader, evidenced by significant purchases of the November $95/$100 call spread, indicates confidence in a potential post-earnings surge of over 10%.

While this approach may be perceived as a gamble, it aligns with the sentiment that Disney, currently priced around $85 a share, could experience a substantial rally post-earnings. All eyes are now on Wednesday's earnings report to see if this daring call spread proves prescient.

DISCLOSURES: (Long ILMN, TTWO, WBD) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX, OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer."