Despite a long and exciting history of earnings-related fireworks for Netflix, Inc. (NASDAQ:NFLX), this quarter’s release was a snoozer. The hyper-growth entertainment darling didn’t say anything to justify an overnight mega-gap, or a harrowing haircut. Depending on the tint of your glasses you can spin that bullish or bearish, but with the binary event now off the table, traders can get back to the business of trading the NFLX stock trend.
And although a wee bit of profit-taking cropped up this week, that trend is still pointing higher. The post-earnings retreat has only lopped off 4.6% of Netflix stock’s price, so it’s merely a flesh wound so far and nothing more.
For spectators unwilling to chase the run-up that carried NFLX stock into earnings, this pullback provides an alluring dip-buying opportunity.
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Netflix stock has now returned to its rising 20-day moving average as well as a significant old resistance zone at $190. And if yesterday’s intraday bullish reversal is any indication, it appears tactical buyers are already pouncing.
If you’re willing to wager this retracement remains shallow, I have just the trade.
The Bet-NFLX-Won’t-Fall-Too-Much Trade
The options market provides some exciting ways to structure our bets. Today’s idea illustrates how we can structure a high probability play that will profit as long as NFLX stock doesn’t fall too far over the coming month.
Sell the Dec $175/$170 bull put spread for 75 cents. The max reward is limited to the initial 75 cent credit and it will be all yours provided Netflix stock remains above $175. While that may not sound like a very rewarding bounty, keep in mind the cost of this trade (and max risk) is only $4.25-per-share ($425-per-contract). So we’re talking about a decent 17.6% return on your money in a mere 56 days.
And, by the way, the options market is pricing in an 83% chance of you capturing that profit, so the probability of winning is high.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
