Earnings Beat – NFLX Trade
Good day Insiders,
Earnings season has kicked off and the first trade we are going to be placing to participate in earnings is going to be Netflix. They are set to report post the close today and given that implied volatility levels are approaching the 100% mark, we are looking at an expected move of +/-25 points. At the time of this update, Netflix is trading at the 363 level. This gives us upside and downside potential to about 387 and 340 respectively. We are going to use 3 pieces in this trade. The buying on an unbalanced condor, the buying of a call spread and the selling of a put spread. Remember that the unbalanced condor gives our downside protection as well as profit potential, so be sure to get that leg of the trade filled.
We will buy the unbalanced condor, as well as the call spread and look to sell the put spread to help pay for both purchases.
Risk & Reward
The entire trade combined will use $10,500 in margin and give us a range of our breakevens being at 319 on the downside and 381 on the upside. In the event Netflix does not move, we are looking at a risk of $480. For those position sizing, the margin is held largest by the condor and sale of the put spread, reducing those quantities will reduce your risk on the downside. For example, if you only wanted to risk $5k, you can simply cut the contract sizes in half (from 10 to 5). If you are wanting to reduce your risk, even more, slice the quantities once again and you will use $2,500. Just keep in mind that your downside profit potential as well as cost if Netflix does not move in impacted.