Netflix shares have been on fire this year, up 107 percent. As the company gears up to report earnings in a little more than a week, one trader is betting the rally could continue.
Todd Gordon, founder of TradingAnalysis.com, noted that Netflix shares are in a “very nice uptrend” ahead of its report on July 16. He wants to get long the stock using options ahead of the event. Here’s how he’s doing it:
- According to Gordon, it’s better to sell puts rather than buy calls here for two reasons.
- No. 1, Netflix options’ implied volatility is moving into overbought territory heading into earnings. This means options prices are expensive given that its post-earnings moves are often large.
- No. 2, it’s time to take advantage of expectations for a continued uptrend. The chance of a huge miss on earnings is relatively small.
- Netflix has a nice uptrend and support should come in around the $380 area. Gordon says he’s selling a put spread below its support line at $375 and buying a $370 put on the July 20 expiration options.
- This trade should generate maximum potential profit at around $1.80 to $1.83 credit.
The trade: Gordon is suggesting buying NFLX July monthly 375/370 put spread for about $1.80.
Bottom line: Gordon sees Netflix rallying on the heels of its earnings report on July 16.