Jim Strugger's Options Strategy For Netflix

Netflix, Inc. NFLX has had a rough start for 2015, the stock was down more than 3 percent since the start of the year and nearly half of that decline came on Monday.

MKM Holdings Derivatives Strategist, Jim Strugger, was recently on Bloomberg to talk about the volatility in tech stocks and share his option trade on Netflix.

"Something we're talking to clients about is putting on some hedges, specifically, we're looking at some Internet stocks we cover Netflix, Pandora Yelp and Twitter and as much as we think these are secular winners. This volatility…in the market makes us want to protect long stock positions into earnings," Strugger said.

The Netflix Option Trade

"So Netflix, very simply, they are reporting next week, out in February we want to sell an upside 400 strike call," Strugger said. "We want to turnaround and buy a put spread, specifically a 320, 270 put spread. You put that on for just about 3.5 percent of the underlying, sounds like a lot, but what we're trying to do here is really manage significant downsize risk. This is a stock that declined almost 20 percent after reporting third quarter earnings."

When asked about his long-term view on Netflix, Strugger replied, "Longer-term, we are very bullish. We have got almost the high on the Street price target of $530. So again, very constructive over the longer-term, but this quarter is going to be about the subscriber growth -- they missed in the third quarter -- that’s going to be the focus."

Shares of Netflix recently traded Tuesday at $328.20, up 2.9 percent.