Disney Has An Expansion That Could Deliver Gains to Traders
News from Disney can seem small but can attract the attention of traders. Recent reports noted that Takumi-Tei, a new table service dining spot on the way to the Japan pavilion at Disney’s second-most popular Orlando theme park behind the Magic Kingdom.
The new restaurant will be operated by Mitsukoshi USA, which oversees the merchandise, kiosks and existing Teppan Edo and Tokyo Dining restaurants at the park.
The restaurant is set to pay homage to Japanese artisanship and how the country’s culture and architecture are inspired by nature.
The Disney Parks Blog adds,
“The restaurant will be named Takumi-Tei, which means house of the artisan. The design celebrates the relationship between Japanese craftsmanship and the natural world, while the food is inspired by the wonderful collaboration between nature and takumi, the artisan.
The upscale dinner menu will highlight wagyu beef in a sublime setting, and guests interested in the ultimate experience will be able to indulge in a multi-course tasting menu featuring traditional tea service. Signature cocktails and premium sake will be available along with a wine and craft beer menu.
The new restaurant is set to open this summer during the region’s peak tourism season.
Disney (NYSE:DIS) also is working on a new space-themed restaurant that will be next to Mission: Space in Epcot.
“No dining experience on Earth can match what’s in store, because this new restaurant will take you into outer space for incredible dining experiences that are ‘out of this world,'” said a previous Disney Parks Blog post.
While restaurants don’t garner as much attention as new rides for a theme park, it’s still a big part of the overall guest experience. Unique foods and dining environments have their own appeal for tourists — similar to how Epcot’s annual Food & Wine Festivals are huge draws.
For example, the new Star Wars: Galaxy’s Edge land set to open Aug. 29 in Disney’s Hollywood Studios theme park in Orlando will feature themed restaurants with unique cuisine, as shown in the photo gallery below.
Disney’s Orlando theme parks — Magic Kingdom, Animal Kingdom, Epcot and Hollywood Studios — welcomed nearly 56 million guests through their turnstiles in 2017, which accounts for more than 60% of the region’s tourism market share.
Disney also owns two area water parks, Blizzard Beach and Typhoon Lagoon, as well as several themed hotels, golf courses, a camping resort, timeshare properties, a residential community called Golden Oak at Walt Disney World Resort, ESPN Wide World of Sports and the Disney Springs retail, dining and entertainment complex.
Orlando’s $70 billion tourism industry welcomed a record 75 million visitors last year.”
Disney has been in a trading range recently.
The range comes after a sharp move higher that could forecast additional gains.
A Trade for Short Term Bulls
As with the ownership of any stock, buying DIS could require a significant amount of capital and exposes the investor to standard risks of owning a stock.
To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.
Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.
To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.
This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.
Source: The Options Industry Council
Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.
This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.
A Specific Trade for DIS
Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.
When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.
For DIS, the June 21 options allow a trader to gain exposure to the stock.
A June 21 $140 call option can be bought for about $1.48 and the June 21 $145 call could be sold for about $0.62. This trade would cost $0.86 to open, or $86 since each contract covers 100 shares of stock.
The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.
In this trade, the maximum loss would be equal to the amount spent to open the trade, or $86
The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.
For this trade in DIS the maximum gain is $4.14 ($145 – $140= $5; $5 – $0.86 = $4.15). This represents $414 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $86 to open this trade.
That is a potential gain of about 381% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.