While the broader markets are dithering today, tech stocks are on the move. But it’s Netflix (NASDAQ:NFLX) that’s really catching my eye. NFLX stock is up north of 3% in Monday’s trading, and the launch is carrying shares to a new all-time high above $157.50.
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It’s impressive considering Netflix is taking the spotlight away from Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB) ahead of earnings, and Twitter Inc (NYSE:TWTR) on its newly announced Bloomberg deal.
What we’re witnessing is textbook follow-through on the heels of a breakout pattern. Since its mid-January earnings pop, Netflix shares had been in base building mode. The three-month consolidation kept shares locked in a $10 range between $138 and $148.
Even its April earnings announcement was powerless to break the range. Then, last Tuesday, buyers finally cobbled together enough support to bust out. And since then, NFLX stock has continued rallying nicely to the upside.
With the stock up a fast $10, it’s becoming increasingly tricky to initiate new bullish positions. The ideal entry was obviously the April 25 breakout.
Nonetheless, if you can’t help but dive in here, I’ve got a solid strategy idea.
The Trade on NFLX Stock
With earnings fading in the distance, the quarterly implied volatility crush has all but played itself out. And with that, Netflix options are now being offered up on the cheap.
To capitalize on the sale, plus position yourself to profit from further upside in Netflix stock, consider buying a vertical spread.
You can structure the strategy to double your money if the stock moves a few dollars higher from here.
Buy the Jul $155/$165 bull call spread for $4.50. The max risk is limited to the initial cost and will be forfeited if Netflix sits below $155 at expiration. The max reward is limited to the spread width minus the initial cost, or $5.50. To capture the reward, we simply need NFLX stock to rise above $165 by expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
