Netflix could surge another 20 percent, says technical analyst

Investors have been binging on Netflix this week, sending the stock to all-time highs. TradingAnalysis.com's Todd Gordon says the streaming platform's run is hardly done.

According to Gordon, the stock just broke out of a consolidation near the $200 region, and based on one market theory Netflix is set to soar higher. Gordon is basing his prediction on the Elliott Wave theory, which posits that stock prices move in waves in repetitive cycles. He says that Netflix is poised for another wave up.

"[Netflix is now in what is] considered fourth wave, which means we're going to have one more breakout that should target the zone of February resistance right around the $250 mark," he said Thursday on CNBC's "Trading Nation."

Since Netflix is set to report earnings on Jan. 22, Gordon wants to make a bullish bet on the stock by selling a put spread. Leading into earnings, the implied volatility, or the price of options, tends to rise, meaning that buying options becomes expensive. As a result, by selling a put spread, Gordon can bet on Netflix without making an expensive trade.

Gordon suggested selling the Jan. 26 weekly 205/195 put spread for a credit of $3.90, or $390 per options spread. This means that if Netflix closes above $205 on Jan. 26, then Gordon would make the $390 credit on the trade.

But if Netflix closes below $195 on Jan. 26, then Gordon could face a maximum loss of $635. To avoid the loss, Gordon establishes a point at which to get out of the trade. In this case, he looks at the $200 region, the breakout point for Netflix, as the level to do so.

"[$200] should be your newly formed support level," he said. "If not, let's get out and contain this."

Netflix has had a strong start to the year, rallying 7 percent in the first three trading days of 2018.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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