by John Kmiecik | November 15, 2013 8:38 am
It just seems natural that traders will gravitate toward strategies and stocks that have made them money in the past. Of course, there are some stocks a trader will no touch even if the opportunity looks good, just because of negative outcomes in the past. Here is a trade idea that many option traders use over and over on Netflix (NFLX), which has been traded time and time again.
The trade: Sell the NFLX Dec 315/320 Put Credit Spread (selling the Dec 320 put and buying the Dec 315 put) for $1.05 or better.
The strategy: The maximum potential profit for this trade is $1.05 if Netflix stock is trading above $320 at December expiration. The maximum loss is $3.95 ($5 – $1.05) if NFLX is trading below $315 at December expiration. Breakeven is $318.95 at expiration based on a credit of $1.05.
The rationale: Netflix has the most popular streaming service with over 40 million accounts. One of the keys to the company’s success has been that it’s always looking to improve itself. NFLX has formed several alliances with key partners and it has added several successful original programs. Amazon (AMZN) is set to release some original programming itself, so we will have to wait to see what the impact will be on Netflix. Still, NFLX is changing the way that subscribers view and stream content through video game consoles and other devices.
Click to Enlarge However, the Netflix stock chart is what makes this trade idea compelling.
There are multiple levels of potential support between where NFLX stock currently is trading at and the sold strike. There also is minor support at $330 and $326.
If that wasn’t enough, the daily 50-day simple moving average is currently right around the $320 level. Netflix stock has not closed below the moving average since early July.
If that trend continues, then this trade idea is in great shape — even if watching too much television has the opposite effect on your physique.
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.
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