Option Trade: Generate Income With This Strategy In Netflix Stock | Summary and Q&A

TL;DR

Learn how to set up a calendar spread option trading strategy on Netflix for a neutral outlook, generating income by selling a short-term option and buying a longer-term option with the same strike price.

Key Insights

• 📅 Calendar spread is an option trading strategy for income generation.
• ™️ Netflix stock is currently trading around $510, making it suitable for a neutral outlook trade.
• ™️ The trade involves selling the August 20th call and buying the August 27th call at the same strike price.
• 🌸 The maximum loss for this trade is the net cost of $185 per spread.
• ❓ The estimated maximum profit is $500 if Netflix remains around $510.
• 💨 The trade aims to profit from the faster decay of the sold option.
• 🍳 Break-even prices are estimated at $495 and $525, subject to changes in implied volatility.

Transcript

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Questions & Answers

Q: What is a calendar spread option trading strategy?

A calendar spread involves selling a short-term option and buying a longer-term option with the same strike price. It is used for income generation and relies on the decay of the sold option over time.

Q: How does the calendar spread strategy work on Netflix?

The trade involves selling the August 20th call option for around $1045 in premium and buying the August 27th call option for around $1230 in premium. The net cost is $185 per spread, and the maximum profit is estimated at $500 if Netflix remains around $510.

Q: What are the break-even prices for this calendar spread trade?

The estimated break-even prices are around $495 and $525. If Netflix goes below $490 or above $530, it would be wise to close out the trade. These prices may vary depending on changes in implied volatility.

Q: Are options risky?

Yes, options trading carries risks, and investors can lose 100% or more of their investments. It is important to practice with a virtual account and learn about options before risking real money.

Summary & Key Takeaways

• A calendar spread is an income trade using options to sell a short-term option and buy a longer-term option with the same strike price.

• This strategy can be implemented on Netflix stock, currently trading around $510, for a neutral outlook.

• By selling the short-term option and buying the longer-term option, traders aim to profit if Netflix remains around $510 for the next few weeks.