by John Kmiecik | August 22, 2013 7:39 am
With the weather probably still pretty nice out, not a whole bunch of people are thinking about staying in and watching a movie like they might do on a less pleasant day. This trade idea should profit whether you stay in and watch a movie or not:
The trade: Sell the Aug 30 255/260 Put Credit Spread (selling the Aug 30 260 put and buying the Aug 30 255 put) for $1 or better.
The strategy: The maximum potential profit for this trade is $1 if Netflix stock is trading above $260 at Aug. 30 expiration. The maximum loss is $4 ($5 – $1) if NFLX is trading below $255 at expiration. Breakeven is $259 at expiration based on a credit of $1.
The rationale: Netflix stock has been a trader favorite for a while now. NFLX, which is already the largest subscription streaming service out there, just signed a deal with Weinstein Co. for exclusive rights to its movies. Netflix stock shot up more than 5% Tuesday on news of the agreement. NFLX also just won a lawsuit over its shareholders, who claimed they were misled about business prospects for its streaming operations.
Click to Enlarge Taking a look at the chart, it’s hard to see what shareholders are complaining about as Netflix stock has continually moved higher over the past year. On Tuesday, NFLX closed above its most recent high, then pulled back Wednesday on some likely profit-taking.
The key to this trade idea’s profitability is the $260 area, which was resistance for Netflix stock. NFLX finally closed well above that level, which means now that prior resistance has become potential support. Don’t know if the sky is the limit for Netflix, but if the stock doesn’t drop another $10 in less than two weeks, it could at least be a nice little profit!
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get a free trial of John’s live options trading room here.
Source URL: http://investorplace.com/2013/08/credit-spread-netflix-stock-nflx/
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