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What are your options - Netflix streaming earnings
Koen Hoorelbeke
Investment and Options Strategist
Summary: In the dynamic world of options trading, keeping a keen eye on the performance of key players in various sectors is crucial. One such player that has consistently made headlines is Netflix. As we approach the release of Netflix's earnings report, there are several strategic moves that investors and traders can consider.
What are your options - Strategies for Netflix Inc. Earnings
In the dynamic world of options trading, keeping a keen eye on the performance of key players in various sectors is crucial. One such player that has consistently made headlines is Netflix. As we approach the release of Netflix's earnings report, there are several strategic moves that investors and traders can consider. In this article, we will explore three potential trade setups that could capitalize on this event. Each setup caters to a different market outlook - bullish, neutral, and bearish. Whether you're anticipating a surge in Netflix's stock price, expecting it to hold steady, or predicting a dip, using options there's a strategy for each view. Let's delve into these setups and analyze how they could help you.
Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
Bullish Strategy: Bullish Credit Put Spread
If you're bullish on Netflix, you can consider a vertical put spread. This strategy involves selling a put option while simultaneously buying another put option at a lower strike price. The goal is for the stock to stay above the strike price of the sold put.
Here's the setup:
• Sell to Open: 21-Jul-23 445 Put
• Buy to Open: 21-Jul-23 440 Put
You are selling to open a put option with a strike price of $445 and buying to open a put option with a strike price of $440. This is a credit spread strategy where you receive a net premium of $235 (the difference between the premium received from the sold put and the premium paid for the bought put).
The maximum risk for this trade is $265, which is the difference between the strike prices of the two options ($445 - $440 = $5) times 100 (since each option contract represents 100 shares), minus the net premium received.
The maximum profit is the net premium received, which is $235.
The breakeven point for this trade is $442.65. This means that you will start to make a profit if Netflix's stock price is above this level at expiration.
The probability of profit is 58.18%. This is calculated based on the delta of the short leg.
The trade has 3 days to expiration (DTE) and the implied volatility rank is 32.20%.
The position greeks are as follows: Delta is 0.0406, and Theta is 0.0856. These values indicate the sensitivity of the position's value to changes in the stock price and time decay, respectively.
Neutral Strategy: Iron Condor
Based on the ATM straddle with expiration of this Friday (21 July 2023), we can calculate the expected move that the options market foresees for Netflix by summarizing the cost of an ATM call and an ATM put. This gives us an expected move of up and down of $39.99.
If you think that Netflix will stay in the expected move range right after the earnings, you may consider an iron condor. This strategy involves selling a call spread and a put spread on the same stock with the same expiration date. The goal is for the stock to stay between the strike prices of the sold options.
Here's a possible setup:
• Buy to Open: 21-Jul-23 505 Call
• Sell to Open: 21-Jul-23 500 Call
• Sell to Open: 21-Jul-23 415 Put
• Buy to Open: 21-Jul-23 410 Put
Reason | High Implied Volatility (IV) due to numbers out on 19th July after market close |
Expectation | Limited movement in Netflix shares after releasing the figures and imploding IV |
BEPs on expiry | Profit between $413.10 and $501.90 |
Max Risk | If you get a premium of $1.90 the max risk/loss would be $5 - $1.90 = $3.10 per share. 1 contract = 100 shares. Max Risk/Loss = $3.10 * 100 = $310. |
For Who? | Only for traders/investors to adhere to the view that the numbers will not cause a move outside the expected move in the share price of Netflix |
Trade set up | Sell the Iron Condor in the last 1 – 4 hours of trading on Wednesday 19th for around $ 1,45 - $1,50, or more (stagger in case of bigger positions) |
Closing | A GTC (Good Till Cancelled) order to close the position at $0,30 (stagger in case of bigger positions) |
Emergency | If there is a big move in the underlying outside the bandwidth of the long strikes, monitor closely and close position latest on the 21th of July 2- 4 hours before expiry |
Probability of Profit | 64.17% |
Expected Move | for 21th July ’23, based on ATM straddle: +/- $39.99 |
IV Rank | 32.20% |
Bearish Strategy: Bearish Credit Call Spread
If you're bearish on Netflix, consider a vertical call spread. This strategy involves selling a call option while simultaneously buying another call option at a higher strike price. The goal is for the stock to stay below the strike price of the sold call.
Here's the setup:
• Buy to Open: 21-Jul-23 455 Call
• Sell to Open: 21-Jul-23 450 Call
You are selling to open a call option with a strike price of $450 and buying to open a call option with a strike price of $455. This is a credit spread strategy where you receive a net premium of $190 (the difference between the premium received from the sold call and the premium paid for the bought call).
The maximum risk for this trade is $310, which is the difference between the strike prices of the two options ($455 - $450 = $5) times 100 (since each option contract represents 100 shares), minus the net premium received.
The maximum profit is the net premium received, which is $190.
The breakeven point for this trade is $456.90. This means that you will start to make a profit if Netflix's stock price is below this level at expiration.
The probability of profit is 49.98%. This is calculated based on the delta of the short leg.
The trade has 3 days to expiration (DTE) and the implied volatility rank is 32.20%.
The position greeks are as follows: Delta is -0.0392, and Theta is 0.0029. These values indicate the sensitivity of the position's value to changes in the stock price and time decay, respectively.
Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.
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