arrow-left arrow-right brightness-2 chevron-left chevron-right circle-half-full facebook-box facebook loader magnify menu-down rss-box star twitter-box twitter white-balance-sunny window-close
Netflix Earnings. Credit trades that keep costs low and probability high.
3 min read

Netflix Earnings. Credit trades that keep costs low and probability high.

Netflix Earnings. Credit trades that keep costs low and probability high.

  • Netflix (NFLX) reports Q2 earnings after the close Thursday
  • Expected move for this Friday's close is ~8.5%.
  • Expected move over the next month is ~13.5%

The Set-Up

The trading day following last earnings, the stock closed down 2.8% and was down 4.8% intraday. It made lower lows over the following week but rebounded from there and is now ~$100 higher than April's earnings. Here's the next month's expected move chart, with this Friday highlighted, via Options AI:

Ways to Play

With a $500+ stock calls and puts are quite expensive, and call spreads and put spreads are as well. I wanted to focus on the use of Condors and Flies to express not only neutral views, but also slight directional. These are interesting trades to keep risk/cost down while keeping probability high, and taking advantage of being short premium into an event.

The first stance to look at is a neutral one, here's a neutral target for this Friday via Options AI technology. Both trades look to take advantage of the expected move for strike selection, establishing ranges between expected move points as the profitable areas, and moves beyond the expected move losses, but with defined risk:

Neutral Condor: This is targeting the event itself. The condor establishes a range between $480 and $570 in the stock where it achieves max profit. A move beyond 480 or 570 means max loss.

Neutral Fly: The Fly targets $525 specifically, and close on Friday away from that and profits trail off. Any move beyond 480 or 570 and the Fly also is max loss.

Bearish Fly: Flies can be adjusted to express a slight directional view. If one was looking for NFLX to close at $500 on Friday, the above fly can be lowered to center at that price, creating a 450/500/550:

In this case the profitability zone is much lower, but it is still profitable if the stock goes nowhere. Any move above 550 in the stock is a max loss.

Bullish Fly: The same thinking can be applied to the upside, here is the fly with the strikes adjusted higher, targeting 550:

And that trade on the chart, via Options AI:

Short Flies and Condors have many advantages, mainly lower cost and higher probability. However, like most credit spreads you are risking more to make less. In the case of the Fly that may not be as obvious, but remember, the max gain shown is if the stock were exactly on the short strike. In most cases that will not happen. Rather it should be thought of a little more like horseshoes and hand grenades. It will be profitable across a wide range in the stock and most profitable anywhere near your target (the center of the fly).

Previously:

Actionable Insights from the Options Market

Earnings event expected moves
Unusual activity alerts
Spread trade education

Broker Dealer (FINRA Registered)

Built for one-tap spread trading
No chains. No per contract fees.
Powered by OptionsAI technology (Patent Pending)