While the investing class has been obsessing over all things Brexit, Netflix, Inc. (NFLX) has quietly receded back below all major moving averages. And although NFLX stock has largely traded in a sideways range this year, the descent in its longer-term trend is suggesting that downside risks remain.
Take the 200-day moving average for instance. Given the harrowing January price drop and wishy-washy action since, NFLX’s long-term average (ocean liner that it is) has finally turned lower. Which is saying something.
Any and all recovery attempts are suspect until this beast of an average finally turns higher.
Since dropping earlier this month, Netflix stock has been forming a nice little low base. Sideways consolidation patterns like this provide clean entries for bearish trades. What’s more, the narrowness of the range allows traders to place a close stop-loss if the NFLX breakdown morphs into a bear trap.
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Consider initiating bearish Netflix stock plays on a break of the $92.75 zone. However, if NFLX pops back above $96.50 following such a trigger, I’d bail. The pattern will have failed at that point leaving little reason to stay the course.
Buy NFLX Puts and Profit
On the options front, prices remain dirt-cheap. The implied volatility rank is a lowly 9%, which means option premiums are trading at some of the cheapest levels of the past year.
Such a sale demands a long option play here. July options are the ones with the most depressed prices, so we’ll focus on that cycle.
The trade: Buy the July $94 put once NFLX stock breaches $92.75. The price should be around $3.50.
As with all long put trades, your risk is limited to the initial debit and will be forfeited if NFLX stock sits above $94 at expiration. The reward is limited only by the stock falling to zero, so consider your profit potential unfettered if Netflix stock really bites the dust in the coming days.
Since July options only have 24 days remaining, don’t overstay your welcome.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
