This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies. We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.
Netflix(NFLX) Pulls Back After Earnings, Is It a Buy?
Recent hikes in the price target for Netflix stock among analysts suggest there is further upside. Stifel Nicolaus has raised their target from $345 from $325 and Raymond James increased targets from $290 to $330.
NFLX has pulled back since its earnings report but price action over the past few days suggest some exhaustion as a doji candlestick pattern has printed and the stock price has edged higher since. This pattern was established at the 50-day moving average which remains a key indicator to the downside. Further support is seen slightly below it in the form of a rising trendline.
If you agree there’s further upside ahead for NFLX, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.
Buy To Open NFLX 01JUN18 307.5 Puts (NFLX180601P307.5)
Sell To Open NFLX 01JUN18 310 Puts (NFLX180601P310) for a credit of $1.08 (selling a vertical)
This price was $0.02 less than the mid-point of the option spread when NFLX was trading near $312. Unless the stock rallies quickly from here, you should be able to get close to this amount.
Your commission on this trade will only be $2.50 per spread (the rate charged by thinkorswim for Terry’s Tips’ subscribers). Each contract would then yield $105.50 and your broker would charge a $250 maintenance fee, making your investment $144.50 ($250 – $105.50). If NFLX closes at any price above $310.00 on June 1, both options would expire worthless, and your return on the spread would be 73% (833% annualized).
Changes to Investor’s Business Daily (IBD) Top 50 This Week:
We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run. Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.
As with all investments, you should only make option trades with money that you can truly afford to lose.