NFLX Pre-Earnings Option Strategy

NetFlix (NFLX) is scheduled to report their 3rd quarter earnings and have a conference call on October 14th after the market close.

If you are bullish on NFLX, post earnings report; here is an interesting options strategy you can utilize.

The goal of this strategy is to own a long call when earnings are released and to purchase this call before hand, at a reduced price. To do this, use a call diagonal.

Call Diagonals

You can enter this order all at once as a spread or, buy and sell the legs individually.

To enter the trade at once, place an order to sell one Oct2 expiration (8 days from expiration) 107-strike call and purchase one Oct15 (15 days from expiration) 110 strike call.

This spread is currently trading around a debit of $3.75.

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The plan is for the sold 107 call to expire worthless the week before earnings are released, and then you hold the one 110 call the week of earnings, that can increase in value if NFLX has a bullish reaction to the report and trades at $113.75 or higher.

Of course you can trade this with different strikes if your opinion varies.

Bearish Reaction

If NFLX has a bearish reaction to the report and doesn’t trade higher you will of course lose on the trade but no more than the $3.75 debit in this example.

This is a way of reducing cost basis for a profitable upward spike in the price of the NFLX post earnings release.

Mark Fenton – Options Mentoring

1 reply
  1. Serge Bulan
    Serge Bulan says:

    Just wondering if before earnings the short call expires ITM between 107 and 110 – will we not end up with short stock position for -$10700?
    Kind regards, Serge


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