How Netflix Options Traders Nailed a 130% Profit in Less Than a Month

NFLX was trading near a key moving average

Josh Selway
Sep 28, 2017 at 1:26 PM
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Subscribers to Schaeffer's Weekly Options Trader service recently scored a 130% profit from weekly 9/22 162.50-strike Netflix, Inc. (NASDAQ:NFLX) calls. Below, we'll break down why we were bullish on NFLX and how the options trade unfolded. 

Netflix's stock chart was setting up nicely for a bullish move when we recommended the calls back on Aug. 30. Specifically, the shares were sporting a year-to-date gain of 39%, but had pulled back near their 80-day moving average. This trendline has historically offered strong support according to our quantified data, with NFLX ending higher on a 21-day basis 83% of the time after coming within one standard deviation of the moving average. On average, the shares gained 9.3% one month out. 

The stock also recently bottomed near the $165 level, site of its June peak, hinting at potential support. Just above here was $170, which was double the equity's lows from May to July of last year. Plus, this all came after financial publication Barron's suggested the stock could fall 50% as a result of Disney pulling its content.

Moreover, Netflix's Schaeffer's Volatility Index (SVI) ranked in the bottom quartile of its annual range at the time. In other words, volatility expectations were relatively muted on near-term options. 

The stock subsequently pushed higher allowing us to close half our position on Sept. 21 with the shares flirting with their July record highs. When NFLX reversed from here the next day, we recommended options traders close the remaining half of their position, locking in a gain of 130% in a matter of weeks. 

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