Buying the Dip in Disney

10/06/2014 8:00 am EST

Focus: OPTIONS

Gregory Harmon, CMT

Founder and President, Dragonfly Capital Management

Greg Harmon of Dragonfly Capital charts the recent dip of this leading diversified international family entertainment and media enterprise and offers several steps for both retail and options traders to take in order to potentially ride the next wave higher.

Walt Disney, (DIS), has had an amazing trend higher since September 2011. During that time all pullbacks have been opportunities to buy on the cheap and ride the next wave higher. This current pullback might be the latest opportunity.

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The signs are adding up. The stock has touched the 100-day SMA, which has been support over the last year. The intraday reversal last Thursday, building a hammer candle, started higher right at the rising trend line. The RSI has reached the lows of prior reversals. This time could be different and it could still fall further. But with a stop against the trend line it is a good reward to risk entry point.

An options trader might also see the potential to let it run further by adding a collar to the stock. By selling the November 90 Covered Calls and buying a November 7 Expiry 85/80 Put Spread, you could give it room to the 200-day SMA below. And that collar can be had for free. That November 7 Expiry also gives you protection through the company's earnings report expected November 6. With the collar, you are risking about $1 in the stock as long as it stays over 80.

By Greg Harmon of Dragonfly Capital

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