Netflix Stock Has Been Popping Higher; This Option Trade Could Profit $850 | IBD | Summary and Q&A

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January 30, 2023
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Investor's Business Daily
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Netflix Stock Has Been Popping Higher; This Option Trade Could Profit $850 | IBD

TL;DR

Learn how to set up a calendar spread strategy for Netflix stock using options, which can potentially profit from the passage of time and changes in implied volatility.

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Key Insights

  • 🥳 Netflix stock has been on a strong rally since July 2022, supported by solid earnings reports and maintaining its position above the 50-day moving average.
  • 😒 The use of calendar spreads in options trading provides an opportunity to profit from time decay and changes in implied volatility.
  • 😫 Traders can set up a calendar spread for Netflix stock at a 360 strike price, expecting neutrality in the stock's movement.
  • 😫 It is important for traders to carefully manage the trade by setting profit targets and stop losses.
  • 📅 Calendar spreads are considered an advanced trading strategy and not recommended for beginners.
  • 🤑 Practice with a virtual account before risking real money in options trading.
  • 😚 The complexity of options trading carries the risk of losing 100% or more of the investment.

Transcript

foreign Traders for today's trade we're looking at a calendar spread in major streaming service Netflix so taking a look on Market Smith shares a bin having a strong rally since July of 2022. the stock retook its 50-day Line near the end of July and strong volume on a solid earnings report then Netflix went on to form its first successful base in q... Read More

Questions & Answers

Q: What is a calendar spread strategy?

A calendar spread strategy, also known as a time spread, involves selling a shorter-term option and buying a longer-term option with the same strike price. It profits from the passage of time and/or an increase in implied volatility.

Q: Why would traders use a calendar spread strategy?

Traders use a calendar spread strategy to potentially profit from the time decay of the shorter-term option, while still benefiting from any positive movements in the underlying stock. It can be a relatively low-risk strategy.

Q: How does a calendar spread strategy work for Netflix stock?

For Netflix stock, setting up a calendar spread involves selling a February 17th expiring 360 strike put option and buying a March 17th expiring 360 strike put option. This allows traders to potentially profit if Netflix remains around 360 for the next few weeks.

Q: What are the estimated break-even prices for the trade?

The estimated break-even prices for the calendar spread trade are around 340 and 385. These values may slightly change depending on the impact of changes in implied volatility.

Summary & Key Takeaways

  • Netflix stock has been performing well since July 2022, with strong earnings reports and maintaining support at the 50-day moving average.

  • A calendar spread strategy involves selling a short-term option and buying a longer-term option with the same strike price, utilizing the passage of time and implied volatility changes for potential profits.

  • By setting up a calendar spread for Netflix stock at a 360 strike price, traders can have a neutral outlook and potentially close the trade for a profit if the stock remains around 360 for the next few weeks.

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