While the stock rally has broadened out this week, it remains technology-driven. The tech-laced Nasdaq was the first major index to score new yearly highs, and it has yet to let off the gas.
As a result of the tech sector’s superior strength, a number of big-name stocks have reached the stratosphere. As bullish as the Amazons (AMZN) and Alphabets (GOOG, GOOGL) of the world may appear, it’s incredibly difficult for the disciplined among us to chase them here. The risk-reward balance simply isn’t attractive.
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But fear not, trade seekers. A little-known media company called Netflix, Inc. (NFLX) has yet to join its tech brethren at all-time highs but appears poised to play some catch-up.
The price action in NFLX stock has been quite constructive in recent months, as it has been engaged in a bit of base building. Like a launchpad for a rocket ship, price bases often provide the needed support for a stock like Netflix to blast off of when it’s primed and ready.
The base in NFLX stock has taken on the form of a symmetrical triangle, showing the typical volatility compression you would expect after such a sharp sell-off like the one we saw in August. The series of higher pivot lows betrays increased buying aggression while the lower pivot highs reveal increased selling aggression.
It’s a tug-of-war that’s destined to end with a bullish victory. Year-end bullish seasonality coupled with the masses binge-watching House of Cards is sure to send NFLX stock to new heights by year’s end.
Here’s how to capitalize on the ascension.
Buy the Jan $115.71/$130 call spread for $4.71. Consider it a bet NFLX stock will touch $130 at some point over the next few months. The max risk is limited to the initial $4.71 debit and will be forfeited if the Netflix stock price sits below $115.71 at expiration.
The max reward is limited to the distance between strikes minus the net debit, or $9.58, and will be captured if NFLX stock can rise above $130 by expiration. By risking $4.71 to score $9.58, the call spread offers a potential 203% return.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
