Disney (DIS): How a Cash-Secured Put Generated a 30.4% Annualised Return

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Carlisle discussed Disney (DIS): How a Cash-Secured Put Generated a 30.4% Annualised Return. Here’s an excerpt from the episode:

[Tim] Yeah. Yeah. Another quality company is Disney.

And so this one, we knew that earnings were coming up for second quarter earnings. And when you see that often volatility picks up a little bit in some of the options pricing. And so the premiums look decent.

Disney’s valuation, I think is pretty compelling. It’s kind of a mid-teens multiple on a high quality business. They’ve had some good movie releases.

The parks business is going really well. I mean, the cruise business is going really well for them. So what we did was we sold the September 18th, $95 put.

We collected $3 and 23 cents a share. The stock was at 99.39 when we set it. So we would have been absolutely happy to own the stock.

The trade had 74 days to expiration. And as you can see, 36 days into the trade, we were able to close out. We made $275 of the $323 target profit.

So instead of the 17.4% annualised return that we targeted, we ended up realising a 30.4% annualised return. So really good, a 3% return on the cash required in 36 days. That’s strong.

And the key thing, folks, is that if the stock would have dipped after earnings, and let’s say it goes to like 93 or 94 and we end up owning it, Toby and I are happy with that outcome. That’s not something that we view as a losing situation because ultimately we might have more upside in that type of scenario. So it’s kind of the heads I win, tails I’m comfortable.

Either way, we’re okay. But so this one, earnings were better than expected and the outlook was good. And so the stock rallied and we were able to lock in most of the principal.

[Tobias] Good stuff.