Remember that sickening feeling when a stock you love suddenly drops 13% in less than two weeks? Yeah, that was Disney right after its latest earnings call. Flat revenue spooked the algos and the retail crowd hit the sell button hard. I watched the carnage from the sidelines, coffee getting cold, wondering if this was finally the moment the Magic Kingdom lost its magic.
But here’s the thing I’ve learned after staring at charts for more years than I care to admit – panic creates opportunity. And right now, Disney’s chart is screaming that the worst is over.
Why Disney Is Setting Up for a Serious Bounce
I’m not going to sugarcoat it: the earnings report was messy on the top line. Streaming is still burning cash, parks are facing some margin pressure, and the linear TV business continues its slow bleed. All fair concerns. But markets rarely move in straight lines, and sometimes the price action tells you the bad news is already baked in.
That’s exactly what’s happening here. After the initial wave of selling, buyers stepped in aggressively. Volume spiked on the reversal days, and the stock has quietly clawed back a good chunk of the losses. More importantly, three of my favorite technical indicators just lined up in a way that gets me genuinely excited.
The DMI Finally Flashed the Magic Signal
If you trade trends, the Directional Movement Index should be tattooed on your forearm. The moment the +DI (green line) crosses above the -DI (red line) while the ADX is rising, you’re looking at a textbook trend reversal.
We just got that cross. Clean. No hesitation. The last time Disney showed this exact setup was back in early 2023 – and the stock ran more than 40% in the months that followed. I’m not saying history repeats perfectly, but it sure rhymes.
Trend changes don’t ask for permission. When the DMI flips, smart money starts positioning.
MACD on Steroids (My Secret Faster Settings)
Everyone uses the standard 12,26,9 MACD. It works. But it’s slow. I switched to 5,13,5 years ago and it changed everything. You catch turns weeks earlier.
Disney triggered a bullish MACD cross with these settings on November 25th. At the time the stock was still bleeding. Most people ignored it. I didn’t jump in immediately – earnings gaps deserve respect – but now the histogram is expanding and the signal line is pointing straight up. Confirmation received.
RSI Climbing Like Mickey on Sugar
The Relative Strength Index spent weeks in the basement after the sell-off. Oversold territory. Fear central. Then something beautiful happened – it started grinding higher while price consolidated. That divergence between fear (low RSI) and actual buying (higher lows) is pure rocket fuel.
Right now RSI sits above 60 and still accelerating. Momentum chasers are waking up.
Putting It All Together – Confluence City
- DMI bullish crossover ✓
- Faster MACD surging ✓
- RSI breaking out of month-long base ✓
- Price holding above the 50-day moving average ✓
- Volume expanding on up days ✓
When you get this many independent systems flashing green at the same time, you don’t overthink it. You position.
The Trade: A Stupidly Cheap Bull Call Spread
I love bull call spreads for these setups. Defined risk, high reward, and you don’t need Disney to explode – just a modest move higher.
Here’s the exact trade I put on this week:
- Buy January 9th 107 calls
- Sell January 9th 108 calls
- Net debit: around $0.50 (sometimes even $0.45 if you’re patient)
- Max risk: $50 per spread
- Max reward: $50 per spread
Yes, you read that right. Risk $50 to make $50. A move of less than $1 in the stock (from current levels around $107.50) takes this trade to full profit.
Asymmetric payoff doesn’t get much better than this. You’re basically buying a lottery ticket where the jackpot hits if the stock goes up 50 cents.
Why This Expiration? Why These Strikes?
January 9th gives us 31 days – plenty of time for the rebound to play out but short enough that theta decay works in our favor once we’re in the money. The 107-108 strikes are deliberately tight because:
- They’re already slightly in-the-money or at-the-money
- Delta is high (you make money fast if the stock moves)
- Breakeven is basically current price
- 100% ROI if filled at $0.50
I’ve run this exact spread setup on rebounding large caps dozens of times. When the technicals line up like this, the win rate is stupidly high.
Position Sizing and Risk Management
Because the risk is only $50 per spread, you can size this aggressively without losing sleep. I took 50 contracts myself – that’s $2,500 at risk for potential $2,500 profit. For smaller accounts, even 10 contracts ($500 risk) moves the needle.
My personal rule: never risk more than 5% of the trading account on any single idea, no matter how convinced I am. This trade easily fits that parameter.
What Could Go Wrong (And How I’d Handle It)
Nothing is guaranteed. If Disney gaps lower on some surprise negative news, the spread goes to zero. That’s the deal you sign when you buy options. But the technical setup would have to completely break down – think new lows with expanding volume – before I’d consider cutting the trade early.
More likely scenario? The stock grinds sideways for weeks and theta eats the position. Even then, with only a month to expiration and such a tight spread, losses stay small unless we’re dead wrong.
The Bigger Picture for Disney Bulls
Look, I’m not here to predict $150 Disney by summer. That’s not what this trade is about. This is a tactical swing based on a high-probability technical setup. Take the quick double, bank the profits, and live to trade another day.
But if the rebound has legs – and the charts suggest it very well might – there will be plenty more opportunities higher up the strike chain. For now, this 107-108 spread is the sweet spot between probability and payoff.
Markets reward patience after panic. Disney just handed us a textbook example. The only question left is: are you going to take the trade, or watch from the sidelines while someone else prints money?
Trading involves substantial risk and is not suitable for every investor. The author may hold positions in the securities discussed.
