3 Options Strategies for Netflix Earnings Next Week

Netflix (NFLX) is due to report earnings next Thursday after the closing bell. The Barchart Technical Opinion rating is a 24% Buy with a Weakest short term outlook on maintaining the current direction.

Netflix rates as a Strong Buy according to 28 analysts with 2 Moderate Buy, 12 Hold ratings and 1 Moderate Sell rating. Implied volatility is 70.80% which gives NFLX and IV Percentile of 100% and an IV Rank of 100%.

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Today, we will analyze three different ideas:

1. A Short Iron Condor
2. A Bull Put Spread
3. A Butterfly Spread

Short Iron Condor

The first strategy is a short iron condor. 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. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

Using the April 17 expiration, traders could sell the $700-strike put and buy the $650-strike put. Then on the calls, sell the $1,150 call and buy the $1,200 call.

Yesterday, that condor was trading around $3.65 which means the trader would receive $365 into their account. The maximum risk is $4,635 for a total profit potential of 7.88%.

The profit zone ranges between $696.35 and $1153.65. This can be calculated by taking the short strikes and adding or subtracting the premium received.

Let’s take a look at another potential option strategy.

Bull Put Spread

Traders thinking that NFLX might trade with a bullish bias could just trade a bull put spread.

For example, selling the April 17 $650 put and buying the $600 put would create a bull put spread. This spread could be sold yesterday today for around $0.85 or $85 in total premium. 

The maximum gain is $85 with total risk of $2,415 for a potential return of 3.52% with a breakeven price of $649.15.

The final idea we will look at is a butterfly spread.

Butterfly Spread

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.

The maximum profit is calculated as the difference between the short and long calls less the premium that you paid for the spread.

Using the April 17 expiry, traders could buy the $850 strike call, sell two of the $870 strike calls and buy one of the $890 strike calls. The cost for the trade would be $440 which is the most the trade could lose. The maximum potential gain is $1,560. The lower breakeven price is $854.40 and the upper breakeven price is $885.60.

 

Conclusion And Risk Management

There you have three different trade ideas for Netflix’s earnings. All three are risk defined trades, so you always know the worst-case scenario even if NFLX makes a bigger than expected move.

Short-term trades over earnings such as these ones are almost impossible to adjust. Either the trade works, or it doesn’t so position sizing is vital.

Short-term trades also have assignment risk, so traders need to be aware of that possibility.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.