Monday, 15 August 2016

Disney Monthly Chart

I keep an ongoing watchlist of monthly charts as I find that monthlies "sometimes" offer a forest from the trees look in terms of evaluating long-term trends.

Here's my current annotated Disney monthly chart.

This set up is interesting to me for a number of reasons:

  • Triangles (or pennants), often mark a period of consolidation. I believe Disney is currently at the tail end of a 2+ year triangle or pennant. The ensuing resolution should move at least the distance within the triangle (or pennant), so in Disney's case, +20/-20
  • Conventional charting wisdom suggests that any resolution of a triangle (or pennant) should move in the direction of the primary trend (i.e., up). I'm not sure I believe this is the case. Conventional wisdom is often anything but. I believe price will resolve whichever way it damn-well wants to. The job of the speculator is to be flexible enough to recognize this.
  • A clean resolution down may not actually produce a -20 point move down as there seems to be a secondary pattern in the form of a falling wedge. A clean resolution up by way of a monthly close < $100 seems less inhibited, and an obvious target would be a move to $120 to retest the old all time highs. I have no idea which type of resolution is more or less likely. 
Here's how I played this:

I bought to open:

1 Jan 17, $105/$110 call spread, net debit, $.90

1 Jan 17, $87.50/$82.50 put spread, net debit, $.67

My thoughts are as follows:
  • If Disney resolves up, the target is $120. My spread (at expiry) should be worth $5 against a debit of $1.57
  • If Disney resolves down, the target is $80. My spread (at expiry) should be worth $5 against a debit of $1.57
  • My risk is no resolution, or a sharp resolution down or up and then subsequent flattening by expiry below $105 and above $87.50 (i.e., Disney goes nowhere by expiry). In this case, I lose $157.

No comments:

Post a Comment