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This Big Company Keeps Surprising Investors

This Big Company Keeps Surprising Investors

Sometimes, a small news story can support a stock, especially when the stock is rallying on earlier news. This could be the case with Walt Disney Company (NYSE: DIS) which remains bullish after a recent earnings report.

DIS daily chart

In the latest news, Bizjournals reported,

Disney Cruise Line, which has two ships sailing out of Port Canaveral — the Disney Fantasy and Disney Magic — has released detailed itineraries of its entire fleet and some new offerings headed to those vessels.

In fall 2020, the Disney Fantasy and Disney Dream will sail to the Bahamas and Caribbean from Port Canaveral, Florida. Most sailings include our special Halloween or winter holiday celebrations, plus each of these cruises from Florida includes a day of fun in the sun on Castaway Cay.

The Disney Fantasy will sail Caribbean and Bahamian itineraries ranging from three to eight nights, and the Disney Dream will sail three- and four-night Bahamian cruises. Bookings open to the public June 13, 2019.

Cruise business is an important aspect to the region’s overall tourist appeal. Some tourists who travel to town for trips to sea try to include visits to land attractions such as the theme parks and more.

In addition, visitors traveling from overseas markets may make time to hit the shopping districts of Orlando before heading back home.

The new itineraries come after the port announced in May that it had entered a 20-year agreement with Disney to expand operations and make the port the home for two of Disney’s three newest ships.

The agreement kicks off on June 1 and includes two five-year renewal options and, initially,150 ports of call — or when a ship docks at port — that increase to 180 in 2023 and up to 216 ports of call in 2024.

Here’s more from that 20-year agreement release:

The terms of the new agreement continue Disney’s exclusive operation from Cruise Terminal 8, in addition to providing preferential use of the port’s Cruise Terminal 10 for a third homeport vessel.

The planned waterside and landside improvements to Cruise Terminal 8 and Cruise Terminal 10 will accommodate the growth of Disney’s fleet of cruise ships.

The new ships are expected to be delivered in 2021, 2022 and 2023, with two of them home-porting in Port Canaveral for at least their first five years of operation.

The port welcomes more than 4.5 million cruise passengers a year, making it Florida’s second-busiest seaport. That could skyrocket to 7 million-plus in the next decade and nearly 10 million passengers by 2048.

Cruises currently make up 76% of the Central Florida port’s total revenue, and passengers generated $51.5 million in revenue between Oct. 1, 2017-May 31, 2018, up from $44 million for the year-earlier period.

The long-term chart reflects the bullishness of the company’s varied operations.

DIS weekly chart

 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.

bull call spread

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 July 19 options allow a trader to gain exposure to the stock.

A July 19 $140 call option can be bought for about $1.90 and the July 19 $145 call could be sold for about $0.65. This trade would cost $1.25 to open, or $125 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 $125.

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 $4.35 ($145 – $140= $5; $5 – $0.65 = $4.35). This represents $435 per contract since each contract covers 100 shares.

Most brokers will require minimum trading capital equal to the risk on the trade, or $125 to open this trade.

That is a potential gain of about 248% based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.