Option Trade: Bull Put Spread on Netflix (NADAQ: NFLX)

Trade Commentary:

Given the severity of the broad market sell off most stocks have either damaged the integrity of their multi-month up-trends or experienced a full-fledged reversal into a downtrend. One stock that hasn’t yet fallen out of favor for the bulls and continues to exhibit relative strength is Netflix (NASDAQ: NFLX). The current pullback forming in this high-growth entertainment company may be one more in a long line of buyable dips for options trading investors.

Bull Put Spread Template: Netflix

Traders seeking bullish exposure in NFLX should consider entering a bull put spread by selling to open the NFLX July 240 Put and buying to open the NFLX July 230 Put. At current option prices the spread could be entered for around a $2 credit. In timing the entry traders should wait until the current pullback in NFLX completes and another upswing begins.

This is a strategy with a limited risk and reward. The maximum return is the premium received, which could occur if NFLX stays at current prices or rises slightly. The maximum loss would occur if NFLX falls below the lower strike price before expiration. If that happens, the investor will be assigned to buy NFLX at 240, the short side of the spread, and will exercise the long side, selling NFLX at 230. That $10 loss is offset by the $2 premium received when putting on the position.

NFLX is scheduled to report earnings on July 18 so conservative traders should close the position beforehand to avoid any type of large adverse earnings gap.

Source:  MachTrader

At the time of this writing Tyler Craig had no positions in NFLX.

Follow Tyler Craig on Twitter@TylersTrading.