Netflix, Inc. (NFLX) is scheduled to report earnings after the markets close on Tuesday, January 19, 2016.
Last quarter, the stock had the following price movement after reporting earnings:
Oct 15, 2015
Oct 14, 2015
NFLX has been a very volatile stock lately, it has been having up days on really down market days, and vice versa. I think this quarter, the stock is going to make a bigger than usual price move. However, I want to give myself some time on this trade so the Implied Volatility drop that happens post-earnings won’t effect the price of the options too much. I will be using a Strangle strategy with out-of-the-money options and March 2016 expiration dates. This provides a lot of time-value, and should the stock make a big move, up or down, this trade will do extremely well. Even if the stock makes only a $10.00 price move, I do not see the price of the options deteriorating much at all as they have almost 2 months until they expire. While this trade is not cheap to place (using 7 contracts only on each leg), there is not much risk overall. 9/10.
Here is how the trade is placed:
Buy 7 NFLX Mar16 130 Call
Buy 7 NFLX Mar16 85 Put
NBBO 6.30 – 6.55. Try to pay 6.45 or less for this trade. At a maximum, pay up to 6.55. I will post the STC orders tomorrow, right before the opening bell.
Update 1: 9:24 am EST: After-hours yesterday, the stock made a big move, but is currently only up about $2.00/share, most likely due to the futures being down. I am placing the STC on the call side at $9.00, as the earnings report was very good, so expecting it to move back up. On the put side, place the STC at 7.00 for now. I will be updating this trade frequently here.
Update 2: STC on the puts at 9.00
Update 3: NFLX falling, place the STC on the puts at 11.00 now. Will continue updating as needed.
Update 4: 9:40 am EST. STC at 10.00 on the put side. STC at 7.00 on the call side.