Netflix Earnings: 3 Options Strategies to Consider
Netflix (NFLX) is set to report its earnings next Thursday after the closing bell, and investors are eagerly awaiting the results. The Barchart Technical Opinion rating is a 100% Sell with a Strongest short-term outlook on maintaining the current direction. Long-term indicators fully support a continuation of the trend.
According to 31 analysts, Netflix rates as a Strong Buy, with 5 Moderate Buy ratings and 13 Hold ratings. Implied volatility is 48.54%, which gives NFLX an IV Percentile of 99% and an IV Rank of 96.89%. This high volatility suggests that the market expects a significant move in the stock price.
A Short Iron Condor: A High-Profit Potential Strategy
An iron condor aims to profit from a drop in implied volatility, with the stock staying within an expected range. When implied volatility is high, the wider the expected range becomes. The maximum profit for an iron condor is limited to the premium received, while the maximum potential loss is also capped.
Using the July 17 expiration, traders could sell the $65-strike put and buy the $60-strike put. Then, on the calls, sell the $85 call and buy the $90 call. Yesterday, that condor was trading around $0.52, which means the trader would receive $52 into their account. The maximum risk is $448 for a total profit potential of 11.6%.
The profit zone ranges between $64.48 and $85.52. This can be calculated by taking the short strikes and adding or subtracting the premium received. For example, if the short strike is $65 and the premium received is $0.52, the profit zone would be between $64.48 and $85.52.
A Bull Put Spread: A High-Risk, High-Reward Strategy
Traders thinking that NFLX might trade with a bullish bias could trade a bull put spread. For example, selling the July 17 $70 put and buying the $65 put would create a bull put spread. This spread could be sold yesterday for around $0.68 or $68 in total premium.
The maximum gain is $68 with a total risk of $432 for a potential return of 15.74%. The breakeven price is $69.32, meaning that if the stock price is above this level, the trade will be profitable.
A Butterfly Spread: A Complex but High-Profit Potential Strategy
A butterfly spread is constructed by buying an in-the-money call, selling two at-the-money calls, and buying an out-of-the-money call. The trade is entered for a net debit, meaning the trader pays to enter the trade. This debit is also the maximum possible loss.
Using the July 17 expiry, traders could buy the $65 strike call, sell two of the $75 strike calls, and buy one of the $85 strike calls. The cost for the trade would be $527, which is the most the trade could lose. The maximum potential gain is $473. The lower breakeven price is $70.27, and the upper breakeven price is $79.73.
Conclusion and Risk Management
These three options strategies for Netflix earnings offer different risk-reward profiles. The short iron condor offers a high-profit potential but with a capped maximum loss. The bull put spread is a high-risk, high-reward strategy, while the butterfly spread is a complex but potentially high-profit strategy.
It’s essential to remember that options are risky, and investors can lose 100% of their investment. Short-term trades over earnings are almost impossible to adjust, so position sizing is vital. Traders also need to be aware of assignment risk.
