Earnings Beat NFLX Trade

Market Context
Good day Insiders,

We begin earnings season with tech giant Netflix. The streaming subscription giant has already been in the headlines after their increase in prices. In the past, when they have taken such actions as to raise monthly fees it hasn’t always gone over well. This past week was an exception, Netflix was on a tear to the upside and it seems there is no end in sight. Bouncing from a low last week of $312 to a high of 358, what’s next!? Well as luck would have it, earnings are and we are ready to take advantage of this move. At the time of this update, Netflix and implied volatility are at 353 and a prime 148% respectively. This gives us an expected move of +/-$31. Let’s set ourselves up for profit using our 3 pieces, the unbalanced condor, the short put spread, and the long call spread.

The Trade
In using volatility to our advantage, we are placing the buying of an unbalanced condor, the selling of a put spread and the buying of a call spread as illustrated below. Unless something crazy happens in the market before the close, we will be using these strikes.

Risk & Reward
We will use just over $15k in margin here, for those position sizing, adjust the condor first as it will be the largest contributor to your margin effect. For example, we bought 5 and sold 15, if you are looking for less exposure, buying 2 and selling 6 is an option. Keep in mind, the less quantity there is on the downside, the less protection. The next place to see where margin is being used is the sale of the put spread, be aware, however, the fewer sold, the more costly the entire trade if NFLX does not move. Our breakevens are 301 to the downside and 375 on the upside.