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Netflix, Inc.: Prepare for an Oversold NFLX Bounce

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Let get this out of the way first - Netflix, Inc.'s ( NFLX ) earnings were good. The company beat expectations by 2 cents per share, saw revenue rise 24% year-over-year and crushed U.S. subscriber growth expectations.

On the downside, international growth expectations fell short - the catalyst for NFLX stock's 22% post-earnings decline.

It's about time this disappointment ran its course, however, and traders should take note of the possibility of a short-term recovery for NFLX.

NFLX Stock Chart

Click to Enlarge Technically speaking, NFLX stock is trading in oversold territory. The shares have pulled back to long-term support near $90 and are beginning to show signs that the worst of the post-earnings selloff is over.

After dipping briefly below $90 on Thursday last week, NFLX rallied back on Friday and is looking to extend those gains today.

Additionally, the $90 strike is home to potential put-related options support. More than 10,000 puts are open at the $90 strike between the weekly May 13 series and the monthly May 20 series. The only strike with more put OI is the $85 strike, where about 11,000 contracts reside in both the weekly and monthly May series.

NFLX stock still has overhead resistance issues from a short-term perspective, however. The $95 area has historically been a pivot point for NFLX, providing resistance in February and support in September 2015. Additionally, the $100 mark could be tough for the shares to overcome barring any news out of Netflix or a shift in sentiment from the market as a whole.

That said, an oversold bounce should be more than adequate for short-term options traders to pocket a little cash - especially with implieds still skewed toward the put side of the equation. Overall, May 13 series implieds are pricing in a potential move of about 3.7% this week, placing the upper bound at $94.20 and the lower bound at $87.48.

2 Trades for NFLX Stock

Call Spread: Traders looking to take advantage of short-term gains for NFLX stock might want to consider a May 20 series $92/$94 bull call spread. At last check, this spread was offered at 69 cents, or $69 per pair of contracts. Breakeven rests at $92.69, while a maximum profit of $1.31, or $131 per pair of contracts, is possible if NFLX stock closes at or above $94 when May options expire at the end of next week.

Put Sell: Alternately, if you're still concerned that NFLX isn't quite ready for a full rebound from oversold levels, a weekly May 13 series $85 put sell has a high probability of finishing out of the money. At last check, this put was bid at 20 cents, or $20 per contract.

As with all put sell positions, you'll keep the premium as long as NFLX stock closes above $85 when May 13 series options expire at the end of this week. On the downside, if NFLX trades below $85 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $85 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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