Walt Disney’s stock dropped by 8% after the release of mixed fiscal fourth-quarter earnings, as the overall market also fell. The Dow Jones fell over 800 points, the S&P 500 by 115 points, and the Nasdaq Composite by more than 500 points. Disney’s revenue for this quarter was $22.5 billion, the same as last year, but below the expected $22.8 billion. On a positive note, earnings per share rose to 73 cents, up from 25 cents last year, and adjusted earnings of $1.11 exceeded forecasts of $1.05. Disney’s Entertainment division, which includes films and TV networks, saw a 6% decline in revenue to $10.2 billion. Revenue from linear networks fell 16%, and operating income dropped by 21%. The content sales and licensing division decreased by 26% to $1.9 billion due to weaker box office performances compared to last year’s hits like *Inside Out 2*. Disney’s theatrical division reported a net operating loss of $52 million, a stark contrast to last year’s profit of $316 million.

Streaming Segment Shows Resilience

In a more positive light, the direct-to-consumer streaming segment saw an 8% revenue increase to $6.25 billion and a 39% rise in operating income. Both the ESPN streaming service and Disney+ gained subscribers. However, revenue was affected by a dispute with YouTube TV, but future earnings per share (EPS) growth is expected in fiscal years 2026 and 2027. With Disney’s stock dropping 8% due to missing revenue targets, the immediate outlook seems negative, which is compounded by the overall market decline. Traders anticipate further price drops and are buying put options that will profit if the stock falls below the important $100 mark. The major concern leading to this bearish sentiment is the weakness in traditional TV and movie divisions. Comparisons to last year’s box office results are particularly tough and shed light on the drop in the content division. Last year’s blockbusters like *Inside Out 2* and *Deadpool & Wolverine* set a very high revenue standard that this year’s films could not reach. This significant revenue shortfall explains the drop from a $316 million profit in the theatrical division last year to a $52 million loss now. On a brighter note, the parts of Disney’s business that are essential for the future—streaming and theme parks—show real strength. Hulu subscribers increased by 15%, and the new ESPN streaming option has been successful, reflecting the company’s effective transition to direct-to-consumer offerings. Recent reports from Q3 2025 indicate that subscriptions to sports streaming services grew by 12%, while about 1.5 million households stopped using traditional cable.

Opportunity Arising from Volatility

For derivative traders, the 8% price drop led to a rise in implied volatility, which has jumped to over 45% on 30-day options. This makes selling options premiums an appealing strategy for those who believe the worst is behind us. We are considering selling cash-secured puts at strike prices below the current level, which allows us either to earn from high premiums or purchase the stock at a lower price. Looking ahead, the holiday movie season featuring *Zootopia 2* and a new *Avatar* film could serve as a catalyst for recovery. This makes longer-dated call options or call spreads attractive for those who see this sell-off as a buying opportunity. The company anticipates double-digit earnings growth in 2026 and 2027, indicating confidence that current problems may be temporary. Create your live VT Markets account and start trading now.

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