Netflix is up more than 100 percent this year and has more room to run, trader says

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.

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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.

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