2 Quick Earnings Trades for Netflix, Inc. (NFLX) Stock

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Netflix, Inc. (NASDAQ:NFLX) is heading into this afternoon’s earnings report on top of the world. Just yesterday, NFLX stock tagged a fresh all-time high at $135.40. And that’s after having undergone a 7-for-1 split in 2015.

It appears the human appetite for binge watching television is insatiable.

As with any stock perched at dizzying heights, you can bet expectations are running high into tonight’s earnings release. With investors now paying more for Netflix stock than anyone has ever paid, the media kingpin better deliver the goodies.

I’ll keep my commentary on the NFLX stock chart short and sweet. It’s bullish on all time frames, boasts rising moving averages of all durations, and just broke out of a multimonth base. Despite the rousing chart, remember: Earnings trump all. If Netflix fails to live up to expectations, you can bet on some pain, strong technicals notwithstanding.

Netflix (NFLX) stock chart view 1
Click to Enlarge
Source: OptionsAnalytix

If you’re curious about how much movement the Street is expecting following tonight’s earnings dance, listen up. Since January options expire this Friday, we can use them to identify the expected move. NFLX stock closed Tuesday’s session near $133, so we can use the value of the Jan $133 straddle to gauge the dollar amount the stock is expected to rise or fall after the event.

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Right now, the long straddle is sitting at $13. With a little math magic, we can translate that into a percentage move of 10%. That’s the expectation.

Pick Your NFLX Earnings Trade

Rather than use January options to build a Netflix earnings trade, let’s use February. Going out a month creates a more conservative play — one offering slower rewards, but less risk.

If you’re willing to lean bullish into earnings, sell the Feb $115/$110 bull put spread for 71 cents credit. Consider it a bet that NFLX stock will sit above $115 at expiration. Since the puts sit a fair distance out-of-the-money, you have a good margin of error even if the stock tumbles on earnings.

If you’re looking to lean bearish into earnings, sell the Feb $155/$160 bear call spread for 50 cents credit. Consider it a bet that NFLX stock will sit below $155 at expiration.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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