Disney (DIS) stock closed trading at $151.58 on November 29, rising 0.07% from the previous trading session. The company’s share price continues to reach new highs on optimism related to the Disney+ launch. Since my last article about DIS, Disney Stock Options: Still a Great Buy after Disney+?, the stock has risen from $147.15 to $151.58 as of November 29. This increase represents an upside of about 3%. Moreover, a few analysts have upgraded the company over the past week.
Currently, options traders are making massive bets that Disney stock could continue to rise in the coming weeks. So, let’s consider the company’s options activity and analyst upgrades to see if the stock could continue to surge.
Analysts actively raise Disney price targets
According to TheFly, on November 27, “Loop Capital analyst Alan Gould raised his price target on Disney to $170 and kept his Buy rating after its 10-K disclosure that Hulu generated $2.9B in revenue during the second half of the year while domestic cable subscribers declined at an accelerated rate. The analyst is also modeling a higher forecast of Disney+ subscribers in the first year at 26M, including 6M internationally, after 10M signups were registered on the first day of the service.”
Gould believes that the company can generate over $1 billion in Disney revenue in fiscal 2020. Moreover, he expects Disney revenue to be over $10 billion by 2025.
On November 25, Disney initiated with an “overweight” rating at Consumer Edge Research. The research boutique initiated coverage of Disney with an “overweight” rating, bringing its price target to $175. This implies a 15% upside from the current levels.
Options traders are actively betting on the stock’s rise after earnings
Despite the all-time highs, options traders appear to bet that the stock could rise in the coming weeks. The $152.50 call options for expiration on December 6 have increased by about 1,392 contracts. The calls were traded at about $1.29 per contract as of Friday. This means that the stock would need to rise to about $153.79 by the expiration date on December to earn a profit for the options holder. Moreover, it’s a large wager, considering the stock would need to rise 1.5% in the coming week.
Additionally, the $155.00 calls that expire on December 27 have also seen their open interest rise by around 1,322 contracts to a total of 2,320. The calls were bought at $1.78 per contract. Having said that, it looks like a modest bullish bet, given the total dollar value of these transactions of about $0.4 million. A buyer of those calls would need the stock to rise to $156.78 by the expiration date to break even. That’s a gain of about 3.4% from Disney stock’s current price
How much volatility are options traders expecting for Disney in the coming weeks?
Using the long options straddle strategy, we can assess the expected price movement. This calculation tells us that the stock could rise or fall approximately 4% by the December 20 expiration. Pay attention to the number of open call and put contracts.
In our case, the number of open calls at the $152.50 strike price outweigh the open puts by around 7:1 with 5,970 calls to 814 open puts. Also, the calls at the $155.00 strike price outweigh the put options about 41:1 with 16,069 open calls to just 389 open puts. This difference suggests that options traders appear to be bullish on the stock.