Netflix Is Setup For An Option Credit Spread
Netflix, Inc. Credit Spread (NasdaqGS: NFLX)
TheOptionPlayer.com recommends a Netflix (NFLX) short-term (7-day) option strategy. Investors could simultaneously:
Sell the February week-two expiration NFLX $180 call for $1.94 (yesterday's closing price)
Buy the February week-two $185 call at $1.30 (yesterday's close)
The difference between funds received and paid out is a $.64 per share credit which we keep if Netflix stock closes below $180 on Friday February 8th, but immediately exit the position if it appears the price will end up higher. Another suggestion is if the price gaps higher in the morning open the trade using higher strike prices. See Guidelines page at www.theoptionplayer.com/ for explanation on how trade is set up.
Why we recommend it:
Netflix, Inc. (NasdaqGS:NFLX ) stock spiked approx 75% in three days last week after reporting better-than-feared Q4 earnings. As confirmed is the chart below, Netflix, Inc shares currently are grossly overbought as defined by the Relative Strength Indicator (RSI). In fact, the stock was not this overblown even before the price plunged from its $305 all-time high in July 2011. Technically, a price pullback appears to be inevitable as traders should be expected to start taking their profits. For all the hoopla over Neflix recent earnings announcement, analysts are sounding a warning suggesting there are enough landmines to keep a lid on the price moving much higher. At the very least there is a high probability that Netflix, Inc. stock will remain below the $180 target for another week.
52-Week High: $177.25
52-Week Low: $52.81
Average Volume (3 month): 4,811,460