Bears cast a spell on Disney

Downside positions paid off today after Disney reported disappointing quarterly results.

On May 3, Investitute’s tracking systems detected the purchase of 5,800 May $113 puts for $1.61 to $2.18 with shares at $112.84. Open interest in the strike was only 788 contracts before the trades appeared, showing that they were new positions.

Those puts traded as high as $3.85 this morning, more than doubling in value one week later. The stock was down just 3.25 percent in that same period, illustrating how options can outperform their underlying shares.

Long puts lock in the price where a stock can be sold no matter how far it might drop, gaining value in a selloff with the potential for significant leverage. The contracts can be purchased either as an outright bearish bet or a hedge on a long-stock position.

DIS was down 2.15 percent today to close at $109.66. The entertainment and media giant’s quarterly numbers last night were weighed down by persistent concerns over ESPN.

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