Trading Netflix Ahead Of Earnings? You Have Options
Great Ones, it feels like forever since I last wrote about options trading. So today, we’re going to talk about … you guessed it … options trading. And today’s target is Netflix earnings.
Oh, doesn’t it report earnings tomorrow?
Why, yes! Yes, it does.
Netflix (Nasdaq: NFLX), the former “Sultan of Stream,” is slated to enter the earnings confessional after the market closes tomorrow. Wall Street is expecting a profit of $2.11 per share on revenue of $7.84 billion.
The “whisper number” currently rests at earnings of $2.31 per share … which would be a major boon for NFLX stock if the company hits that target.
But as we all know, Wall Street largely ignores earnings and revenue figures from streaming companies like Netflix. What really matters is subscriber numbers.
And on that front, Netflix has been in a three-quarter slump, shedding nearly 1 million subs in Q2.
During its Q2 earnings report, Netflix said it expected to add 1 million subs during Q3. We’ll find out for sure tomorrow afternoon, but I would wager that anything less than 1 million new subscribers will tank NFLX stock. Unless…
Unless ads are the new “hotness” on Wall Street, not subscriber adds.
Remember that Alphabet, Meta Platforms, Twitter, Roku … and pretty much everyone else that focuses on ad-based revenue is struggling massively right now. The fact is, ad revenue is down across the board, with very few companies forecasting even meager growth in ad revenue.
On that front, Netflix recently signed a deal with ad and ratings firm Nielsen to improve its ad performance … which is a really good thing, since Netflix is launching an ad-supported tier to its streaming options. The new ad tier launches November 3, and analysts expect big things for both ad revenue and subscriber growth for Netflix’s new offering.
In fact, KeyBanc analyst Justin Patterson just reiterated his sector weight rating on NFLX stock ahead of Netflix’s earnings report. Patterson has a bullish outlook on Netflix subscriber growth in Q4 due to the cheaper ad-tier offering. However, he has some reservations about the strength of ad revenue:
While we are encouraged with ad potential over time, we believe meaningful positive revisions are unlikely near-term due to forex and slowing ad-free subscription growth.
So subscriber growth is expected to be up. But ad revenue? That remains the big question for Netflix, and any positive info on the ad revenue front tomorrow could have a very bullish effect on NFLX stock.
Netflix Earnings Options Assessment
Right … so about those options?
I’m getting there. Let’s do a quick NFLX stock assessment first:
NFLX stock is down more than 60% this year — potentially a bargain.
NFLX recently regained its 50-day moving average — good.
NFLX has resistance near $285 due to its descending 200-day moving average — limited upside.
$250 is a major resistance point due to high option open interest and psychological resistance — potential inflection point.
Short interest is only 2.5% of NFLX’s total float — no short squeeze possibility.
NFLX 90-day put/call open interest ratio is at 1.08 — a heavy bearish bias.
I have to be honest, Great Ones, if we were not in a bear market or staring down a recession, this would be a very solid contrarian bull play for Netflix.
But in this market? There are absolutely no guarantees.
So in the interest of letting y’all make up your own minds, here are my bullish and bearish options trade ideas for NFLX stock heading into earnings.
But first, we need a little bit more information.
Netflix’s November implied volatility indicates that options traders are pricing in a potential post-earnings move of roughly 18%. In other words, November options traders expect NFLX could either rally to $284 or plunge to $195.
Knowing these expected moves is critical when trading options. I mean, you don’t want to enter a trade that needs NFLX to move 20% or more if the expected move is only 18%. Furthermore, never bet on the full implied move … you’re gonna have a bad time.
Now, with our potential upside and downside limits set, let’s see some trade ideas that will not be added to the Great Stuff Picks portfolio!
Netflix Bull Call Spread
For those of you bullishly inclined on Netflix’s earnings report, the following trade has the potential to net a 100% gain.
(Note: All options prices were taken at about noon on Monday, October 17. Your results will most certainly vary.)
Buy the NFLX November $250 call — $19.90 ($1,990 per contract).
Sell the NFLX November $255 call — $17.45 ($1,745 per contract).
Entering both options simultaneously is called a spread. In this case, it’s a bull call spread. Here’s the breakdown:
The cost is $2.45 per pair of options (or $245 per pair of contracts).
Breakeven lies at $252.45.
A maximum profit of $2.50 is possible if NFLX closes at or above $255 when November options expire. That’s just above a 100% gain.
Remember, all options are priced as single options, but bought and sold as 100 option contracts.
Netflix Bear Put Spread
On the other hand, if you’re more of the bearish persuasion on Netflix, the following trade could potentially net you a 100% gain on a post-earnings plunge:
Buy the NFLX November $240 put — $18.90 ($1,890 per contract).
Sell the NFLX November $235 put — $16.45 ($1,645 per contract).
Again, entering both options simultaneously is called a spread. In this case, it’s a bear put spread. Here’s the breakdown:
The cost is $2.45 per pair of options (or $245 per pair of contracts).
Breakeven lies at $237.55.
A maximum profit of $2.50 is possible if NFLX closes at or below $235 when November options expire. That’s just above a 100% gain.
Netflix Earnings Options Wrap-Up
Great Ones, you’ll notice that I did not “swing for the fences” with either of these trades.
Both target reasonable moves in NFLX stock following earnings.
Both are relatively sheltered from an implosion of implied volatility, or IV crush, as the kids call it. And if you don’t know what that is, click here now.
Both trades require NFLX stock to move far less than the expected post-earnings move.
And, best of all, both trades offer the potential for a 100% gain.
The exit strategy for both is to close both options simultaneously when NFLX trades above/below the sold option. In other words, close the bull call spread when NFLX trades above $255 and close the bear put spread when NFLX trades below $235.
Now, if all of that was absolute gobbledygook to you … please don’t try either of those trades!
Instead, you need to talk to Mike first.
Oh! Who’s Mike?
My colleague Mike Carr teaches options trading on Wall Street. Wall Street types — and other aspiring traders around the world — fly to him to learn how to trade the way he does.
Why do people fly from all over the world just to learn from Mike?
Because Mike isn’t your average options instructor — he’s one of the best options traders in the world.
It normally costs thousands of dollars to learn from Mike.
Not anymore. You can sign up for Mike’s Options Master Class online for a small fraction of the cost of his in-person class … the one that’s ignited successful trading paths for countless investors.
Good: We’re The Banks Of America
Don’t lie: You filled in the “Oh woah!” part in your head, didn’t you?
Bank of America (NYSE: BAC) reported bang-up results across the board: Fixed-income trading revenue? Up 27%. Net interest income? Up 24%. Surprised? You shouldn’t be … that’s kinda the upside of being a bank amid rising interest rates.
In fact, Bank of America beat analysts’ estimates on all counts, thanks to the interest rate hikes and more folks looking for loans last quarter.
On that note, Bank of America added $378 million to its reserves in case those loans … you know … don’t come back.
Just like Wells Fargo last week, Bank of America is prepping for the worst and hoping for the best. (Although, thankfully, Bank of America isn’t spending out the wazoo on litigation and customer remediation like soooome banks we know. Wells.)
Now if only Bank of America gave out little lollipops with its earnings reports…
Better: Jeepers Creepers
Name an automaker with more fanboys than Tesla.
Have … have you ever seen Jeep people? The Jeepers?
Welp. You got me there.
Jeepers worldwide are absolutely electrified over, you guessed it, electric Jeeps.
Stellantis (NYSE: STLA), which owns Jeep, Dodge, Ram, Citroën, Peugeot, just debuted its first all-electric SUV. The new Jeep Avenger will be one of four electric Jeep models to hit the market in 2025.
Oh yeah … and the electric Jeep doesn’t look like it was designed by a four-year-old with RoseArt crayons. This actually, umm, looks like a Jeep. The 248-mile range ain’t the best in the world, especially not compared to Tesla, though it’s a start in the right electric direction. And the torque from those electric engines is going to be insane on a Jeep, I just know it…
But that’s not the only energizing announcement from Stellantis today:
We have decided the appropriate investments for Stellantis to be able, from a manufacturing standpoint, in 2025 to produce 50% of our energy needs within our own sites. … Energy is the number one precondition for success of electrification, that is no surprise. — CEO Carlos Tavares
Man, Stellantis investors haven’t seen this much news since … ever?
The company is staying tight-lipped on how exactly it plans to produce half of its own energy needs, but that didn’t stop the hype train from rolling down electric avenue: STLA shares soared 4% on the news.
Thing is, without this strange material, the entire $700 billion EV revolution may never happen.
I’m telling you this because Ian King’s uncovered the largest company in the entire Western Hemisphere that supplies this critical material in large enough quantities to meet the massive demands of the EV industry.
With only one domestic supplier planning to process this material on-site … early investors are looking at a potentially massive opportunity for profit.
Best: Canoo’s Chasing Waterfalls
Canoes? Waterfalls? This won’t end well…
You’d be surprised: This is EV maker Canoo (Nasdaq: GOEV) we’re talking about here — anything can happen. After reaching an all-time low in last week’s trading, GOEV shares bounced like a superball, shooting up 21% this morning.
Nothing gets EV investors all riled up like a brand-new batch of EV orders. Work van rental company Kingbee just placed an order for 9,300 Canoos, with the option to double that order down the line.
If you’re not familiar with Kingbee, the company buys work vans and then specializes them for individual customers.
So fleet operators who need vans might be getting a Canoo next time around, which could give the Canoo brand more exposure as workers try out the EVs in their fleets.
It’s no electric Jeep … but a Canoo’ll do.
It was a long one, Great Ones, but we’ve finally come to the end of today’s issue.
So, how’d we do? How’ve we been doing?
Do y’all want more options content like the trade ideas on Netflix?
Need more memes?
More song lyrics?
What are y’all investing in right now … you know, besides dividend stocks and bonds?
Let me know in the inbox below. And if you ever have a stock or investing idea you’d like to see Great Stuff cover, let us know at: GreatStuffToday@BanyanHill.com.
In the meantime, here’s where you can find our other junk — erm, I mean where you can check out some more Greatness:
Editor, Great Stuff