Disney's (DIS) stock has been range bound since about mid-2015.  The stock failed to break above $120 back in 2015 and hasn't increased past $113 over the last 12 months. This has some long-term investors frustrated.

There is something that investors can do to take advantage of this range-bound situation.  Option strategies such as covered calls and selling puts can allow investors to extract more income from their investment. Think of it as creating your own extra dividends.

I would like to point out that the stock is currently declining from an overbought condition according to the stochastic oscillator.  I think the news of the Fox acquisition is baked into the stock for now.  Investors had plenty of time to digest the benefits of the acquisition. So, my thesis is that the stock will remain range bound and probably drop to around $100 or slightly below.  This has been the low end of the trading range recently. 

Just to be clear, I have a positive view of Disney as a long-term investment.  I just think that the range-bound trading is likely to continue in the near term because the news of the 21st Century Fox (FOXA) acquisition has been digested.  I also think there is a good window of opportunity for options strategies before the next earnings report, which is in August. Earnings could cause a spike in the stock price on better than expected results. 

Covered Call Strategy

The covered call strategy is to be used when you expect the stock to decline or remain steady by the expiration date.  Since a positive earnings report could cause a spike in the stock price we'll look at an expiration date prior to August. 

Consider selling the July 20 $108 call option.  This has premium of about $134, which you will collect when you sell the option. If the price of the stock remains below $108 by July 20, then the call will expire worthless.  This is what we want since the call option was sold.  In that case, you profited from the premium that sold of about $134. That is like getting an extra dividend payment.   

The risk to the strategy is that if the price of the stock rose to $108 by July 20, the stock could be called away. This means you would be forced to sell 100 shares of stock for every call option that you sold. So, you should be willing to have that happen if you do this trade. 

That risk will have different perspectives for different people.  It all depends on where you bought the stock and what your motivations are.  The bottom line is to be prepared for being called away.  Otherwise, don't use the covered call strategy. 

This strategy can be done on a regular basis.  You can do it every month or every two months - whatever fits your comfort level.  However, it would be best to sell call options when the stock is at or near an overbought condition. This increases the likelihood for the stock to pullback. 

Put Sell Strategy

The put sell strategy is to be used when you expect the stock price to rise.  It is also a great strategy to use when you want to buy more stock. Just as you could be called away with a covered call strategy, you could be assigned the stock using a put sell strategy.  

For the put sell strategy, it would be best to wait for the stock to reach an oversold condition.  This would increase the likelihood of the stock to bounce higher from the oversold condition. 

The stock is not currently oversold. So, I would wait for that to happen before selling a put option.  However, I will provide a trade just to give an example of how it works.  

We'll hypothetically pretend that the stock is oversold and sell the July 20 $102 put option.  This has a premium of about $85.  If the stock price remains above $102 by July 20, you would profit from the $85.  

If the stock dropped to $102, you would be assigned the stock, meaning that you would be forced to buy 100 shares for every put option that you sold. That would get you the stock at a theoretical price of about $101. You were assigned at a price of $102, but you also kept the premium of $85 or $0.85 per share that you sold.  So, that would be the equivalent of getting the stock at a 5% discount to today's price.      

Final Thoughts

I realize that options strategies are not for everyone.  Investors will know their comfort level and whether or not those strategies make sense for them. I think it is important to understand the risk of being called away or assigned the stock. I wouldn't sell a call or put if I didn't wasn't willing to be called away or assigned the stock. 

Those who held Disney stock over the years might be getting frustrated over the past few years of a range-bound stock.  So, these strategies can make holding onto the stock more profitable than merely collecting dividends.