Option Trade: Generate Income With This Strategy In Netflix Stock

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.

Transcript

[Applause] hey option traders for today's strategy we're going to take a look at a calendar spread in netflix a calendar spread is an income trade that involves selling a short-term option and buying a longer-term option with the same strike price usually this is done with monthly options but it can also be done with weekly options if you want trad... Read More

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.

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.