NFLX Bullish Call Spread at $3.10 Appears to be a Good Buy

24 May 2024, 11:25 AM

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By Dmitry Pargamanik

How this NFLX Bull Call Spread Works

The bottom of the NFLX trade card shows us that we would buy one call and sell another with the same 21-Jun-24 expiration (this is a bull call spread as indicated on the top of the card).

Buy: 21-Jun-24 645 CALL

Sell: 21-Jun-24 650 CALL

Reasons to Like This Trade

  • You can buy this spread for $3.10 when theoretically it’s worth $3.50. Simply put, the market is implying a theoretical edge of 12.9%.
  • Your maximum gain is $1.90, which means you can make an astounding 61.3% return on your investment in 19 trading days! (That's if the stock closes at 650 or above. $1.90 / $3.10 = 61.3%) At the time of this alert, the stock was trading at 650.29.
  • The stock only needs to close at, or above, 650.00 after 19 trading days for you to realize this maximum return. Since the stock is already above your ideal price of 650.00, you have a cushion in the strategy. The stock can decline by -0.3% and you'll still break even. If the stock stays here or goes higher you will make your max gain.
  • 5 out of 7 indicators are pointing to a bullish sentiment in the stock, which is enough to believe there is a decent chance the stock price could hit its mark of 650.00. Look, nobody knows for sure if the stock is going to go up or down, but, if you had to handicap the stock price, these metrics are indicating that NFLX is really riding the momentum of bullish signals.
    Metric Signal Bull or Bear
    Relative Performance 1-yr Outperform Bullish NFLX Bullish Relative Performance 1 year
    Relative Performance 3-Mon Outperform Bullish NFLX Bullish Relative Performance 3 Month
    Relative Performance 2-Wk Outperform Bullish NFLX Bullish Relative Performance 2 Week
    Seasonality Neutral Neutral
    Technical Bearish
    Historical Price Action 70% Uptrend Bullish NFLX Bullish Historical Price Action
    Option Order Flow Sentiment Positive Net Option Delta Bullish NFLX Bullish Option Order Flow Sentiment

Conclusion

This trade in NFLX looks like a good opportunity because:

  1. 5 out of 7 bullish indicators support positive momentum
  2. 61.3% potential return on your investment
  3. Theoretical edge of 12.9%
  4. The stock price is already at the price point for you to make your max gain and can even go down by -0.3% and you'll still break even!

Don't Let an Opportunity Pass You By!


How to Find More NFLX Bull Call Spread Strategies

How you can find bull call spread trade ideas for other stocks


And if you want to find more bull call spreads for other stocks, go to the bull call spread screener


Relative Performance

NFLX has outperformed the market in the last year with a price return of +82.6% while the SPY ETF gained +29.6%. NFLX has also outperformed the stock market ETF in the last 3 month and 2 week periods returning +11.4% and +6.2%, respectively, while the SPY returned +4.6% and +1.9%, respectively.

Learn about a stocks relative strength


Seasonality: Neutral

The strategy involves holding the position from May 24 to Jun 21 expiration. Historically, this has been a neutral seasonal period. In the past 12 years, NFLX shares have increased 50% of the time between May 24 to Jun 21, while averaging a return of +2.8%. Learn how to look up stock seasonality.

Technical:

None

Historical Price Action: 70% Uptrend

In the last 4 years, there were 20 historical samples of NFLX stock price movements over the same time period as this option spread. The stock moved up 70% of the time for an average return of +8.2%.

How to generate statistics on a stocks historical price return distribution

Option Order Flow Sentiment: Positive Net Option Delta

At the time of this NFLX trade idea, bullish option order flow exceeded bearish option order flow. The net option delta volume was 155 K.

Learn more about option delta volume.

Find out the latest sentiment from the options market for NFLX

Videos you might like

How to Screen for the Best Bull Call Spread


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About the Publisher - Marketchameleon.com:


Marketchameleon is a comprehensive financial research and analysis website specializing in stock and options markets. We leverage extensive data, models, and analytics to provide valuable insights into these markets. Our primary goal is to assist traders in identifying potential market developments and assessing potential risks and rewards.



NOTE: Stock and option trading involves risk that may not be suitable for all investors. Examples contained within this report are simulated and may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices and were not actually executed, so they do not reflect actual trades, fees, or execution costs. This report is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither Market Chameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades. You can read more about option risks and characteristics at theocc.com.


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