DailyPlay – NFLX Conditional Opening Trade (NFLX) – December 19, 2022

NFLX Conditional Bearish Opening Trade

View NFLX Trade

Strategy Details

Strategy: Short Call Vertical Spread

Direction: Bearish

Details: Sell to Open 2 Contracts Jan 20th $300/$320 Call Vertical Spreads @ $7.23 Credit.

Total Risk: This trade has a max risk of $2,554 (2 Contracts x $1,277).

Counter Trend Signal: This is a Bearish trade on a stock that is experiencing a long-term bullish trend.

1M/6M Trends: Mildly Bearish /Bullish

Technical Score: 10/10

OptionsPlay Score: 102

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that if there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that this is a CONDITIONAL trade. We will only enter the trade when the condition is met, which is IF PRICE RALLIES TO THE $301/$305 AREA. Also note that the cost basis, premium paid, as well as the number of contracts when we open this trade will therefore be different from what we post today. This condition is only valid for a week unless advised otherwise.

Investment Rationale

Stocks slid again on Friday as selling begat selling – some expiration related; some prior longs giving up on their positions; and CTAs (i.e., Commodity Trading Advisors) turning into sellers as their computer programs turned bearish. S&P futures got very close to my downside target to cover my own short position (3852) I put on Tuesday just beneath 4100, so I covered at 3863 after a few attempts down to my level that didn’t quite get reached. (The SPX got close to the bottom of the prior unfilled gap (3818) and its disqualified bearish Propulsion Momentum level (3814), so I wasn’t gonna get greedy over the last few points.)

One of the more amusing things occurred earlier this month, whereby I had instructed my institutional clients to exit a NFLX long I had gotten them into on May 12 near $170. On December 2, I recommended they exit that long, and we got out at an average price of $311.

A week later, two Street analysts (one from Wells Fargo and one from Cowin) upgraded NFLX, causing the stock to take out what was a December high of $322 to push to $332. Just a week later, the stock is trading $290.

Once again, the supposed fundamental experts who cover this stock for a living, decided to upgrade only after the stock had rallied 80-plus percent off its low. It’s hysterically funny!

NFLX – Daily

To me, it’s a short, and I’d like to use a rally to the $301 to $305 area to sell a Jan 20th $300/$320 call spread at the then bid/offer mid-price. (These calls are actually high-priced now and a better sell than puts are a buy.) The current Jan.20th ATM/$20 OTM call spread is collecting 43% of the strike differential.

THIS IS A CONDITIONAL TRADE THAT WILL GET EXECUTED IF PRICE RALLIES TO THE $301/$305 AREA.