DIS Short Into Earnings Swing Trade

We’re looking for an entry point within the next day or so to get short on DIS either by short sale or long puts.

Update

The entry parameters were never met, so this trade was never entered. It was a good watch list item, and I’m still bearish on the setup, but with the unpredictability of earnings this will be pulled from the watch list.

Thesis

If Disney stock price drops below $96.2 it won’t meet support until approximately $91. The impending earnings event can be a catalyst to move the stock price more quickly than normal, and over that past two years we’ve seen several earnings events with preceding drops. The stock is currently in a channel downtrend (within a larger channel) since late July. Recent consolidation has primed the stock for downward movement with it’s next support at $96.2. Below this level it will reach channel support or hard support from late September 2016.

Entry Point

The safest play is to wait for support break of $96.2 and immediately get short. If you’re trading commons, a simple short sale will do. The options play here is to buy the 10 NOV 17 95P. The earnings date will help keep theta risk low.

Exit Point

Both short sellers and option traders should set stop loss no more than 2% above the breakout line of the underlying ($98.12). This play is NOT intended to be held through earnings, only to capture the price movement beforehand, which means a hard exit date of November 9th.

Notes

It is very possible that the entry parameters are never satisfied and the entry point is never reached. However, if it follows through as expected this will be a nice short play. There is also the possibility that the trade is triggered and it begins to consolidate at or below the BO line. I would watch closely, but still hold if this is the case. In previous earnings, the price drop came only 4-5 days prior.

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