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Disney (DIS) Makes Walt Proud, Big Ben Stays Focused

|Includes:BWLD, The Walt Disney Company (DIS)
1:25pm (EST)

The bears haven’t been much of a factor over the past 7 weeks and at some point they will wake up (which could be next week or not), but for now, the bulls are putting them to bed. The market got off to a slow start and losses were limited at the open as Wall Street prepared for Ben Bernanke’s comments who was speaking before the House Budget Committee.

The major indexes were slightly lower but as his comments were being digested, the Dow turned positive. However, they remained flat until the drilling began. Republicans asked Big Ben some tough questions but he seemed calm and his voice was as smooth as a breath mint. QE2 was the main point of interest but he also answered questions on the economy, inflation and interest rates.

Turning to earnings, Walt Disney (DIS, $43.53, up $2.35) is up 6% after reporting profits of $1.3 billion, or $0.68 a share, versus $844 million, or $0.44 a share, in the year ago period. The suit-and-ties were looking for $0.56 a share. Revenue came in at $10.7 billion, up from $9.7 billion and ahead of estimates for $10.5 billion.

It seems the Marvel Entertainment acquisition is paying off well and we were impressed with Disney’s ad revenue. We liked the Disney call options yesterday but stayed on the sidelines as we get our earnings trade tonight, after the closing bell, which is listed inside our Members Area.

We also said Buffalo Wild Wings (BWLD, $52.58, up $5.19) could move 8%-10% today and we nailed that forecast as shares are zoning in their 52-week high of $52.99. We said a “strangle” option trade would be a great way to play Buffalo’s earnings so although we didn’t release any “official” trade recommendations we feel like we went 2-for-2 yesterday. However, we have had some subscribers who have emailed us this morning who said they took the trades based on our comments.

Shares of Buffalo Wild Wings were at $47.39 going into yesterday’s close and you could have played the February 50 calls (BWLD110219C00050000, $2.70, up $1.75) for 85 cents and the February 45 puts (BWLD110219P00045000, $0.05, down $0.95) for $1.00. The call options have soared over 185% while the puts have tanked 95%. The total cost of both options would have been $1.85 and at currents prices both options are worth $2.75. This gives you a return of 49%.

A 50% double-digit return in ONE day is a nice gain AND it was basically a risk free trade. However, the beauty of the trade is that you could close the calls and leave the puts open until next Friday. You would only be risking 5 cents and if they expired worthless you would still make 46% on the trade. Shares will probably not slide back below $45 before next week’s expiration date but they could.

We explain how to do strangle and “straddle” option trades in our trading manual, How to Trade Options on Momentum Stocks and some subscribers used our course materials which explained how to put this trade on. At any rate, our subscribers are enjoying their gains and that is what our manula is intended to do.

Despite the headwinds, the indexes are holding up pretty well. The Dow is currently at 12,222, down 10 points. The S&P 500 is off by 5 points to 1,319 while the Nasdaq is lower by 6 points to 2,791. The good news is that we have ANOTHER trade that is approaching a triple-digit return. Subscribers, check the Members Area for the important trade updates.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Stocks: DIS, BWLD