Netflix, Inc. Credit Spread (NasdaqGS: NFLX)
TheOptionPlayer.com recommends a Netflix (NFLX) short-term (8-day) option strategy. Investors could simultaneously:
Sell the Sept. week-three expiration NFLX $320 call for $1.40 (yesterday's closing price)
Buy the $325 call at $.86 (yesterday's close)
The difference between funds received and paid out is a $.54 per share credit which we keep if Netflix stock closes below $320 on Friday Sept. 21st, but immediately exit the position if it appears the price will end up higher. Another suggestion is if the price gaps higher in the morning open the trade using higher strike prices. See Guidelines page at www.theoptionplayer.com/ for explanation on how trade is set up.
Why we recommend it:
After back-to-back days of hitting all-time highs, shares of Netflix, Inc. (NasdaqGS: NFLX) several analysts suggest that it may be time to take profits and lowered their ratings on the leading video service provider today. Netflix shares have soared 439% over the past year through yesterday's close. But revenue has only grown 20% over the past year, fueled by a 36% spike in streaming subscribers that's been offset by a decline in folks paying more for disc-based plans. Basically, analysts are saying the company’s more-than-$300-a-share stock price has, in effect, probably gone high enough.
As displayed in the chart below, Netflix, Inc shares currently are grossly overbought as defined by the Relative Strength Indicator (RSI). Technically, a price pullback appears to be inevitable as traders should be expected to start taking their profits. The chart also confirms the Netflix share price consistently drops whenever the stock is at its current overbought level. At the very least there is a high probability that Netflix, Inc. stock will remain below the $320 target for another week.
52-Week High: $314.18
52-Week Low: $53.05
Average Volume (3 month): 3,092,350