This Disney (DIS) Trade Targets a 100% Return in Seven Weeks

Stocks bounced back a little on Tuesday after the selling on Friday and Monday. All four of the main indices moved significantly higher with the gains accelerating in the afternoon hours. The Russell led the way with a gain of 1.95% and it was followed by the Dow with a gain of 1.77%. The Nasdaq notched a gain of 1.58% and the S&P gained 1.57%.

All 10 of the main sectors moved higher on the day, but the one that stood out the most was the communication services sector with a gain of 2.8%.

[hana-code-insert name=’adsense-article’ /]Three other sectors gained over 2.0 percent—energy (+2.33%), materials (+2.31%), and industrials (+2.06%).

The only sector that didn’t gain at least one percent was the utilities sector which gained 0.37%.

Once again my scans were bullishly skewed with 55 names on that side of the docket and only five on the bearish side.

The barometer did drop slightly from Monday’s reading of 90.1. The final reading on Tuesday was 80.7.

Given the greater number of names on the bullish list again last night, today’s trade idea comes from the bullish side again.

The subject of today’s option trade idea is Walt Disney (NYSE: DIS) and the company is pretty solid fundamentally. The EPS rating from IBD is an 84 and the SMR rating is a B.

Disney has been trending higher from its low in June with a trendline connecting the lows. The stock recently hit that trendline and has hovered right around its 50-day moving average at the same time. I look for a bounce in the coming weeks. The stochastic readings didn’t quite reach oversold territory on this recent pullback and that is a similar pattern we saw in July when the stock rallied sharply.

Buy to open the December $110-strike calls on DIS at $7.50 or better. These options expire on December 21. These options will double if the stock reaches $125 and that is only 8.9% from yesterday’s closing price. I suggest a target gain of 100% with a stop at $111.

— Rick Pendergraft

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Rick Pendergraft, Trades Of The Day

Rick Pendergraft has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick's analysis process includes fundamental, sentiment and technical analysis.