Buy the Netflix Stock Chill

A negative earnings reaction for FAANG stock NFLX could be a bullish signal

Jul 18, 2018 at 2:33 PM
facebook twitter linkedin

FAANG stock Netflix, Inc. (NASDAQ:NFLX) was the talk of Wall Street on Tuesday, after the streaming content titan reported weaker-than-expected subscriber growth in the second quarter -- much to the delight of several analysts who had issued pre-earnings downgrades. Although NFLX was well off its session lows by yesterday's close, the security still surrendered more than 5% on the day. However, a technical signal suggests now could be an opportune time to snag Netflix shares at a discount.

NFLX yesterday fell as low as $344, and was on track for its worst day since 2016, but ultimately settled at $379.48. Today, the FAANG stock is down another 1.4%, last seen at $374.12.

However, the security is now within one standard deviation of its 80-day moving average, after a lengthy stretch above this trendline. Historically, similar pullbacks to this trendline have presented buying opportunities. After the last six signals, Netflix stock went on to rally 5.18%, on average, one month later, and was higher 83% of the time, per data from Schaeffer's Senior Quantitative Analyst Rocky White. A similar rebound from current levels would put NFLX around $393.50.

NFLX stock chart july 18

In addition, it's worth noting that the last time NFLX stock fell after earnings was in mid-October. The equity retreated 1.6% the day of its miss, and went on a five-day losing streak. By Nov. 6, the equity was back within striking distance of its pre-earnings highs. Likewise, Netflix shares surrendered 2.6% on April 18, 2017, after an earnings whiff, ending at $143.36. By May 12, NFLX closed back above $160.

Options volume yesterday touched a new annual high, with about 457,000 puts and 536,000 calls exchanged. Volume remains accelerated today, trading at 1.6 times the norm. It looks like some short-term speculators are expecting NFLX to rebound back above $380 by week's end, buying to open the July 380 call -- the most active option so far today.

Traders looking to speculate on the FAANG stock's short-term trajectory can take advantage of the post-earnings volatility crush. The stock's Schaeffer's Volatility Index (SVI) of 36% is now in just the 21st percentile of its annual range, pointing to relatively tame volatility expectations now being priced into near-term options.


Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released! 



Special Offers from Schaeffer's Trading Partners