Here, we update our important indicators and check the progress of the IWM Calendar trade idea from last week. Then since there are still a good number of important companies yet to report earnings, we have an earnings trade idea for The Walt Disney Company (DIS) from a new contributing author that looks very interesting.
Along with support from the earnings reports released so far, the current uptrend in the major indexes are reflecting advances in both the transports as well as rising interest rates both suggesting an improving economy. Following this trend now is the time to consider more long positions especially in the economically sensitive sectors that have been performing well like materials, energy and the homebuilders. Although the market appears extended until an unbalancing force triggers a correction it should keep trending higher.
IWM Calendar Update
Last week, Dan Sheridan suggested adding to the IWM Calendar spread at 92 and again at 88. Since IWM closed the week at 90.37 without reaching 88 on the downside or 92 on the upside, no additional calendars were added to the position. Stay tuned as it looks like 92 will come before 88.
Earnings Report
From our friends at KeeneOnTheMarket.com here is an interesting suggestion in a somewhat different format.
The Walt Disney Company (DIS)
As The Walt Disney Company prepares to release earnings after the close on Tuesday, the stock appears poised to continue its bull run. Their direct ownership in Hulu puts them in an excellent position to capitalize on the proliferation of 4G LTE, as well as tablet and smart phone growth. Other reasons for optimism include the announcement of a new series of Star Wars films by wholly owned subsidiary Lucas Films, and impressive revenue gains by ESPN. Last quarter also saw improved attendance at Disney theme parks, a trend expected to continue.
DIS closed Friday up .71 (1.32%) while the Feb 15 expiration 52.5 puts closed at .40 with an implied volatility of 27.70 and the 55 puts closed at 1.28 with an implied volatility 24.85.
Using the HIMCRRBTT trading plan (Historical Movement, Implied Movement, Measured Move Targets, Chart, Risk, Reward, Breakeven, Time, Target) for all my earnings trades, consider this idea.
The 1Q Disney earnings report is scheduled for release Tuesday after the close. We think they will have a great quarter, but always look at the HIMCRRBTT Trading Plan
H: Historical Movement:
Historical Earnings Move: Mean 3.7%, Median 3.5%
I: Implied Movement:
Near-term straddle indication:
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M: Measured Move Targets:
Upside: 55 + 2.10= 57.10
Downside: 55 – 2.10= 52.90
C: Looks great – looking to buy any pullbacks.
Trade: Selling the Feb 55-52.5 Bull Put Spread for .88 Credit.
R: Risk: 163 per 1 lot
R: Reward: 87 per 1 lot
B: Breakeven: 54.13
T: Time: February 15
T: Target: Stock stays above 55
We will have a good idea of the results on Wednesday.
For questions and more information about this unique method, visit their website KeeneOnTheMarket.
The suggestion above uses the closing middle price between the Friday bid and ask. Monday, the option prices will be somewhat different due to the time decay over the weekend and any price change.
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Summary
The January Effect suggests the year will close higher and as they say, “the trend is your friend” so until an unbalancing force creates a correction stay with the uptrend and the market leaders.