How to Buy Disney Stock for Cheap

How to Buy Disney Stock for Cheap from The Motley Fool

1. 1. How to Buy Disney Stock for Cheap
2. 2. Looking to buy Disney stock for cheap? ❏ Waiting for a pullback can be a problem if the stock never comes down to your intended purchase price. ❏ With put selling you make a profit even if the stock never falls to that price level. ❏ Income from put selling reduces your effective entry price. ❏ You are making a commitment to buy the stock in the future, so you need to be able to trust the company.
3. 3. Main questions for investors What is a put option? A put option is a contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.
4. 4. Main questions for investors Example Put options on Disney stock with expiration date January 15, 2016 and a strike price of $110 allow the buyer of the contract to sell 100 shares of Disney for $110 each until January 15, 2016. This contract is currently selling for approximately $290.
5. 5. Main questions for investors How put selling works ❏ If the stock is above the strike price at expiration, the puts will not be executed, so the seller keeps the put price as pure profit and has no further obligations. ❏ If the stock price is below the strike price, the puts will be executed. The put seller will need to buy the stock at the strike price. ❏ Income from the put sell reduces the effective purchase price.
6. 6. Going back to the example ❏ If Disney stock is above $110 at expiration, the puts will not be executed. The put seller keeps $290 from the contract sale as profit. ❏ If Disney stock is below $110 at expiration, the puts will be executed. The put seller needs to buy 100 shares of Disney at $110. ❏ Due to the $290 income from selling the puts, the effective purchase price is actually $107 per share.
7. 7. When to sell puts ❏ When you like the company, but you prefer to buy at a lower entry price. ❏ When you want to make income while you wait for the stock price to fall. ❏ When you trust the business and its long term profits, so you know that any short term dip in the stock price is a buying opportunity for the long term.
8. 8. Disney is a great candidate for put selling ❏ Disney is a world-class player in the entertainment industry. The company has enormous brand power and it owns many of the most valuable intellectual properties in the business. ❏ A proven management team with a rock-solid trajectory at the company. ❏ Plenty of promising growth venues, including the new Star Wars movie scheduled for release in December.
9. 9. Impeccable financial performance
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