This earnings season has been rough for the tech space. Leaders from Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) to Amazon.com, Inc. (NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB) have been taken out and shot one-by-one. Which is what makes Netflix, Inc. (NASDAQ:NFLX) so darn attractive.
Netflix stock escaped those dastardly bearish assassins and remains alive and well. And in case you didn’t notice, NFLX stock is boasting a mighty attractive chart right now.
Let’s dive into the price action to see what kind of trades are in store.
The Netflix earnings gap and the subsequent follow through added 30% to its stock price — $100 to just shy of $130 in a hot minute. Well done, you entertainment beast, well done.
The surge was sufficient in establishing a solid uptrend complete with rising 20-day, 50-day and 200-day moving averages. With buyers having wrested control of the entertainment titan, bullish setups are bound to multiply.
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Which brings us to the current opportunity. Overbought conditions coupled with broad market weakness have conspired to take the Netflix stock price down a few notches this week.
But, really, this pullback can’t be surprising. I mean, even little old NFLX deserves a break after running 30%. And it’s not like we’re seeing any mega down days. The price retreat remains benign with an utter lack of aggression by profit-takers.
Volume patterns have remained mild during the descent with nary a distribution day making an appearance. Throw it all together, and the future continues to look bright for Netflix stock. Once all the election nonsense stops weighing on stocks, NFLX should be atop your buy list. Relative strength during a correction usually begets relative strength during the subsequent market recovery.
Netflix Stock Trade
Implied volatility remains subdued in Netflix making long option plays the way to go for traders looking for a pop into year-end. Buy the Jan $120/$130 bull call spread for around $4.50.
The max risk is limited to the initial $4.50 debit and will be lost if the stock sits below $120 at expiration. The max reward is limited to the distance between strikes minus the net debit, or $5.50, and will be captured if NFLX can rise above $130 by expiration.
By risking $4.50 to potentially capture $5.50, this leveraged spread offers an impressive 122% return on investment. In timing the entry, I suggest waiting for Netflix shares to break above a prior day’s high to signal its next upswing has commenced.
As of this writing, Tyler Craig owned neutral option positions in Netflix stock.
