Play Netflix's (NFLX) Bounce
Netflix, Inc. Credit Spread (Nasdaq: NFLX)
TheOptionPlayer.com sets up a Netflix (NFLX) short-term (8-day) option strategy. Investors could simultaneously:
Sell the October week-three expiration NFLX $280 put for $1.97 (yesterday's closing price)
Buy the $275 put at $1.43 (yesterday's close)
The difference between funds received and paid out is a $.54 per share credit which we keep if Netflix stock closes above $280 on Friday October 18th, but immediately exit the position if it appears the price will end up higher. Another recommendation is if the price gaps lower in the morning open the trade using lower strike prices. See Guidelines page at www.theoptionplayer.com/ for explanation on how trade is set up.
Why we recommend it:
Over the past four weeks we have profited from trading Netflix, Inc. (NasdaqGS: NFLX) weekly options. Prior to this week our Netflix trades have been call credit spreads that benefited from the stock primarily trading below the resistance line of its recent trading range. As seen in the chart below, Netflix along with most stocks were crushed this week as investors concerned that the government shutdownwould continue past the debt ceiling deadline prompted traders to cash in some gains. After almost quadrupling since the start of the year, Netflix had dropped 13% in a week, since closing at an all-time high of $330.73 on Oct. 2, with the bulk of those losses seen the last two sessions.
As highlighted in the chart below, recently Netflix price has always bounced back as the stock approached oversold levels. After being oversold this week during the market pullback shares of Netflix jumped more than 5 percent after a bullish comment from Needham, in which the firm initiated Netflix with a Buy rating and a $425 price target for the shares. Also, keep in mind that traders should bid the stock higher as investors make bets ahead of Netflix October 23rd earnings announcement. Netflix stock has not been below the price target since August and at the very least there is a high probability that Netflix, Inc. stock will continue to trade above $280 for another week.
52-Week High: $334.50
52-Week Low: $57.40
Average Volume (3 month): 3,105,390
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.