Let get this out of the way first — Netflix, Inc.’s (NFLX) earnings were good. The company beat expectations by 2 cents per share, saw revenue rise 24% year-over-year and crushed U.S. subscriber growth expectations.
On the downside, international growth expectations fell short — the catalyst for NFLX stock’s 22% post-earnings decline.
It’s about time this disappointment ran its course, however, and traders should take note of the possibility of a short-term recovery for NFLX.
NFLX Stock Chart
Click to Enlarge Technically speaking, NFLX stock is trading in oversold territory. The shares have pulled back to long-term support near $90 and are beginning to show signs that the worst of the post-earnings selloff is over.
After dipping briefly below $90 on Thursday last week, NFLX rallied back on Friday and is looking to extend those gains today.
Additionally, the $90 strike is home to potential put-related options support. More than 10,000 puts are open at the $90 strike between the weekly May 13 series and the monthly May 20 series. The only strike with more put OI is the $85 strike, where about 11,000 contracts reside in both the weekly and monthly May series.
NFLX stock still has overhead resistance issues from a short-term perspective, however. The $95 area has historically been a pivot point for NFLX, providing resistance in February and support in September 2015. Additionally, the $100 mark could be tough for the shares to overcome barring any news out of Netflix or a shift in sentiment from the market as a whole.
That said, an oversold bounce should be more than adequate for short-term options traders to pocket a little cash — especially with implieds still skewed toward the put side of the equation. Overall, May 13 series implieds are pricing in a potential move of about 3.7% this week, placing the upper bound at $94.20 and the lower bound at $87.48.
2 Trades for NFLX Stock
Call Spread: Traders looking to take advantage of short-term gains for NFLX stock might want to consider a May 20 series $92/$94 bull call spread. At last check, this spread was offered at 69 cents, or $69 per pair of contracts. Breakeven rests at $92.69, while a maximum profit of $1.31, or $131 per pair of contracts, is possible if NFLX stock closes at or above $94 when May options expire at the end of next week.
Put Sell: Alternately, if you’re still concerned that NFLX isn’t quite ready for a full rebound from oversold levels, a weekly May 13 series $85 put sell has a high probability of finishing out of the money. At last check, this put was bid at 20 cents, or $20 per contract.
As with all put sell positions, you’ll keep the premium as long as NFLX stock closes above $85 when May 13 series options expire at the end of this week. On the downside, if NFLX trades below $85 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $85 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
