Harness NFLX for Another Charge Higher

by John Kmiecik | October 3, 2013 8:04 am

There are stocks out there that seem to set up time and time again for a nice trade. They might not always make money for you, but more times than not they do. Here is a trade idea on Netflix (NFLX[1]) — one of those stocks that continuously seems to set up for a nice opportunity.

Netflix (NFLX — $330.73): Put Credit Spread

The trade: Sell the NFLX Oct 305/310 Put Credit Spread (selling the Oct 310 put and buying the Oct 305 put) for 70 cents or better.

The strategy: The maximum potential profit for this trade is 70 cents if NFLX is trading above $310 at October expiration. The maximum loss is $4.30 ($5 – $0.70) if NFLX is trading below $305 at October expiration. Breakeven is $309.30 at expiration based on a credit of 70 cents.

The rationale: As previously pointed out, this year Netflix has been one of those stocks that seems to refuse to move lower for any length of time. NFLX continually looks to grow, and just recently won several Emmy awards for its original programming. Television watching reportedly is up to about 34 hours a week for the average American, so the potential for Netflix to grow keeps building.

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As stated earlier, Netflix stock continues to climb and continually sets all-time highs. NFLX just recently broke out above a minor resistance area around $320 after trading around $310 for around a week. That $310 area might now act as an area of support if Netflix stock does drop and keep the stock from moving lower.

Currently, the implied volatility of the options are above historical levels, meaning the options might be selling at a premium, which is a bonus for this credit spread trade idea. Netflix is expected to announce earnings on Oct. 21, which is just after October expiration.

As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities. Get a free trial of John’s live options trading room here[2].

  1. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  2. free trial of John’s live options trading room here: http://markettaker.com/options_insider_trial/

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