DailyPlay – Opening Trade (NFLX) – August 16, 2023

NFLX Bearish Opening Trade Signal

View NFLX Trade

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish

Details: Buy to Open 1 Contract Oct 20th $415/$360 Put Vertical Spread @ $15.72 Debit per contract.

Total Risk: This trade has a max risk of $1,572 (1 Contract x $1,572) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $1,572 to select the # shares for your portfolio.

Trend Continuation Signal: This stock is bearish to neutral and is expected to break below a level of support.

1M/6M Trends: Bearish/Neutral

Technical Score: 9/10

OptionsPlay Score: 136

Stop Loss: @ $7.90 Credit (50% loss).

Entering the Trade

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

Please note that these prices are based on Tuesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

As contagion risks continues to heat up after an emergency rate cut by the PBOC and further defaults emerge, we see further downside to the S&P. After breaking below its key $4450 support level, we are now targeting $4,100 to the downside after VIX rises above the 16% handle. In a market where 10-year yields top 4% again , we scan for stocks trading at rich valuations with EPS growth metrics that are on the lower end to take short exposure in. NFLX is again the a target on my bearish list trading at over 35x forward earnings, while expecting to grow EPS by roughly 19% this year. While the valuation is not ridiculous, a combination of a competitive streaming landscape and virtually no product innovation presents a risk to its valuation as markets selloff. If we review the chart, after breaking out above its $415 resistance, it’s recently completed a head & shoulder formation with trends turning bearish in the past week. While this has not broken yet, the risk is a pullback to its $315 level, nearly 25% lower. This is an opportunity to take a small short position and looking for a break lower in the next few weeks. If NFLX breaks below the $415 level, we would add further exposure to potentially profit from a move down to the $315 target. Buy to Open Oct $415/$360 Put Vertical @ $15.72 Debit. With a hypothetical portfolio of $100,000 I recommend adding another 2% of risk on this trade, which is 1 Contract for a total risk of $1,572. We will set a stop loss on the spread at 50% of the premium paid, $7.90 Credit.

NFLX – Daily