On Sept. 1, we discussed entering a trade in Netflix, Inc. (NASDAQ: NFLX) after rumors surfaced that Netflix would be included in the new Apple Inc. (NASDAQ: AAPL) TV product.

This is a case of buying the rumor (on Wednesday) and selling the news (exiting today), because it is now known that Netflix will be included with the new product. Ambitious traders may wish to continue holding a long position here, but for our purposes the move to resistance today has created a good exit signal.

Original Setup:

The original trade was a synthetic long position or a “combo” long the NFLX Sept 135 Calls and short the NFLX Sept 130 Puts. At the time, the trade was paying a credit of $70 per spread. If the stock had remained within the $130 – $135 range, we could have kept the $70 at expiration. The upside potential was unlimited, and because this trade acts similar to buying the stock, the downside is also theoretically unlimited.

Exit Plan:

The stock is at resistance and currently the combo can be sold for $6 or more. This is a nice improvement in price, and we are happy with the gains. This was a very short-term trade and probably not typical of most setups like this, but once in a while a quick move will happen and we should take advantage of it. At this point we think it makes sense to exit.

To learn more about how we calculate this trade’s gains and why we decided to get out now, watch the video here.

Note: It is important to understand the risks of trading options before you attempt a trade like this. This article is for educational purposes only.

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