Update – Netflix (NFLX) Subscriber Chill

by CC July 17, 2018 11:26 am • Trade Updates

Yesterday we previewed Netflix’s (NFLX) impending earnings and trade ideas in either direction depending on your view. The trades targeted moves in line with the expected move given by the options market. The stock is lower today and is garnering headlines for the eye popping dollar amount, but from a percentage basis it is about as expected and really not that significant considering the stock’s meteoric rise into the event. Obviously it’s a bigger story if we just saw the high in NFLX and selling continues over the next few months. But for now let’s just look at this move. Here was the bearish trade idea, targeting 360 on the downside. From yesterday:

Bearish Trade Idea: NFLX ($399) Buy 400 / 360 / 320 Put Butterfly for $11

-Buy to open 1 July 400 put for 18

-Sell to open 2 July 360 puts at 3.60 each or 7.20 total

-Buy to open 1 July 320 put for 20 cents

The stock opened in the 340s but has found some early buyers and is now 368. With the stock here the July 400/360/320 put fly is worth about $25, so a really nice profit on the move versus the $11 at risk. Intrinsically this trade is worth about $32 so there is some yet to be earned profits if the stock were to settle in this range for the next few days. And it can obviously be worth up to $40 if the stock declines a bit and closes near $360 on Friday. Therefore profit taking can either be done now on a nice gain, or if wanting to squeeze more out of it (if you either think it settles in and collect more premium, or if you think the bounce is overdone and it heads lower) a stop on the upside makes sense.

I’d use a fairly tight stop today of around $375 (the intrinsic value of the current profitable trade). Any close below that and to $360 on Friday and this trade will be worth more, any close above that level on Friday and it will be worth less. Small intraday moves below that will not have a huge effect on the trade. If it closes near that level today it probably makes sense to close today, if it stays in this zone or below and it may make sense to be more patient.