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Fading The Disney+ Bounce? Option Traders Betting Against Stock Following Rally

Wayne Duggan

Shares of Walt Disney Co (NYSE: DIS) are up more than 10% this week on the heels of a successful Disney+ streaming service launch. On Thursday, some large option traders are making some unusually large bearish bets against Disney in the Disney+ era.

The Trades

On Thursday, Benzinga Pro subscribers received 26 option alerts related to unusually large trades of Disney options. Here are some of the largest:

  • At 9:32 a.m., a trader sold 540 Disney call options with a $140 strike price expiring on Jan. 17, 2020 near the bid price at $10.031. The trade represented an $541,674 bearish bet.
  • Less than a minute later, likely the same trader sold another 540 Disney call options with a $145 strike price expiring on Jan. 17, 2020 near the bid price at $6.923. The trade represented a $373,842 bearish bet.
  • At 9:40 a.m., a trader sold 675 Disney put options with an $180 strike price expiring on Jan. 17, 2020 near the bid price at $31.077. The trade represented an $2.09 million bullish bet.
  • At 10:38 a.m., a trader sold 655 Disney call options with a $135 strike price expiring on Nov. 22 near the bid price of $13.928. The trade represented an $912,284 bearish bet.

Of the 26 large Disney option trades, seven were either calls purchased at or near the ask or puts sold at or near the bid, trades typically seen as bullish. Sixteen trades were either calls sold at or near the bid, or puts purchased at or near the ask, trades typically seen as bearish. Three neutral trades were executed near the spread midpoint.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the sheer number of trades, the timing of the trades and the sizes of some of the largest trades, at least some of the action could easily have been institutional hedging.

Fading The Disney+ Bounce?

Disney reported more than 10 million subscribers for Disney+ within 24 hours and said it expects to have between 60 million and 90 million subscribers by 2024. The news sent Disney stock surging more than 7.3% on the day of the launch, adding $13 billion to Disney’s market cap.

At the same time, Netflix, Inc. (NASDAQ: NFLX) shares were down 3%. Netflix, which is the gold standard in streaming video, has 60 million paid domestic subscribers and more than 97 million international subscribers.

Disney is clearly taking aim at Netflix by offering Disney+ subscriptions for just $6.99 per month, much cheaper than Netflix’s $12.99 per month for its standard HD plan. The initial surge in subscribers was so unexpectedly large that Disney+ experienced technical difficulties at one point on Tuesday.

After this week’s big Disney+ rally, option traders may be selling the news and betting that the market got a bit ahead of itself in adding more than $13 billion in instant value to Disney stock.

Benzinga’s Take

Many of the largest trades on Thursday were call sales, suggesting traders may simply be cashing out of big gains this week rather than betting on significant downside for Disney stock. The early numbers are encouraging for Disney, and traders will now be shifting their attention to customer feedback about the service and watching to see how many free weekly trial subscriptions are converted to paid subscriptions.

Disney's stock traded around $147.81 per share at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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