Netflix, Inc. (NASDAQ:NFLX) shares have taken their fair share of damage during the technology sector fallout. So far, NFLX stock has fallen just more than 10% from its highs, officially entering correction territory.
With the entertainment titan on the ropes, it’s worth taking a fresh look at Netflix’s technicals to survey the extent of the damage and discover what it may portend for the future.
For starters, Netflix is still up more than 20% on the year, so it’s not as if shareholders are seeing all of their gains stolen by the summer volatility. If anything, they’ve been overly coddled. Before last week, NFLX stock was spoon-feeding them profits with nary a missed meal.
This downturn has carried the stock below both its 20-day and 50-day moving averages as well as a pair of short-term support levels. And with that, the short-term trend is officially pointing lower.
That means until buyers right the ship, you should view rallies with some skepticism.
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If there’s a silver lining, it’s that the longer-term trend of Netflix stock is still firmly in control of buyers. So far, this correction has been a flesh wound and nothing more. If buyers step up soon, the integrity of the bigger trend can be saved.
In eyeing potential support levels for NFLX shares, the $146 zone is worth watching in the coming days. It acted as a ceiling during the earlier months of the year and now has the potential to turn into a floor.
Additionally, the Stochastic indicator is now flashing an oversold signal suggesting Netflix has become quite stretched in the short run.
Bottom Fish NFLX Stock With Finesse
Implied volatility has ramped alongside the slide. Netflix now carries an IV rank of 56%, which is close to its highest reading of the year. That means out-of-the-money put option premiums are juiced, which sets up well for a bull put spread.
If you think NFLX can remain above $130 for the next month, sell the July $130/$125 bull put spread for 65 cents or better. You will capture the max gain of 65 cents if the puts sit out-of-the-money at expiration.
The max loss is $4.35, but I suggest exiting if Netflix falls to $130 to minimize the damage.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
