The Mouse Roars, but the Bear May Be Coming Out of the Woods

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Disney

(DIS) - Get Report

proved to be

Mighty Mouse

today, not only in the overall market but in the options world as well.

The Mouse roared, hitting a new high in trading this morning of 127 5/8, after announcing better-than-expected earnings, an expansion of its stock buyback plan and a 3-for-1 stock split. The stock was still strong at midday, up 3 11/16, to 125 11/16.

The California fairy tale story sent options traders heavily into the company's in-the-money calls, as prices for some contracts doubled in some cases. For example, May 120 calls traded 3,000 contracts at 8, up 6 1/4; May 115s saw 1,500 contracts move at 12, up 8 1/4; and May 110 calls traded 750 contracts at 16 3/8, up 8 3/4. Newly created calls, in May 125s and 130s, also were selling, with 1,800 and 1,000 contracts trading, respectively.

Some put action in May 120s -- which traded 2,500 contracts at 1 9/16, down 3 13/16 -- indicated it was likely traders were buying and selling both sides as the market in Disney options got frothy and call prices crept higher.

"Anytime a household name announces a stock split like this, you are going to get every butcher, baker and candlestick maker coming out of the woodwork," said Tom Burnett, an options specialist at

Wall Street Access

. "I'll bet we'll see more than 20,000 contracts traded under the Disney name today."

As long as we're on animal stories, options traders saw a bear peering out of the woods, as new negative sentiment started creeping into index options today, including one large play on the

Amex NatWest Energy Index

(NEX).

The big play in the NEX this morning saw three blocks of 3,000 contracts -- all new positions -- trade in what another market pro called "an extremely bearish pattern."

Early this morning, 3,000 contracts each of NEX's in-the-money June 310 and June 280 index puts and 3,000 contracts of NEX June 330 index calls were traded, apparently all by one player, all around the same time. The NEX was at 314.39, down 1.74, this morning. Although the exact meaning of the three-way play is difficult to decipher, it appears the trader created a spread and a straddle that effectively bet on the NEX dropping big time within the next two months, speculated Michael Schwartz, options strategist at

CIBC Oppenheimer

.

Schwartz said it appeared the trader might have sold the 280 puts at 1 5/8, or $162.50 per contract, and bought the 310 puts at 9 5/8, or $962.50 per contract. He then sold the 330 calls at 5 1/2, or $550 per contract, to cover some of the cost of the put spread. Although his exposure is around $800 per contract, this trader would gain around $4,000 per contract if the NEX falls, Schwartz estimated. "The fact that this was a new position really indicates a bear spread on energy," he said.

Indeed, one options specialist suggested that sentiment might be spreading. The smart money was starting to move out of some stock sectors, like utilities, and into more secure commodities, like gold, he offered. "You have the utilities index ticking down, and gold ticking up," he said. "I think that shows some fear of the stock market, and you don't usually see that in a bull market."