This NFLX Calendar Call Spread Could Pay 4.3 to 1
Bullish play with a target stock price of $500
Strategy has +434% upside potential and 34% undervalued
|Strategy: NFLX Calendar Call Spread|
|Sell 15-Dec-23 500 Call||4.10|
|Buy 29-Dec-23 500 Call||6.75|
Option Profit Calculator Results for NFLX Calendar Spread at 15-Dec-23 Expiration
In this scenario, the optimal stock price for the option strategy would be $500.00 on the date of the first expiration, December 15, 2023. This is equal to the strike price of the options in the spread. Since NFLX is in a technical uptrend currently, and the strikes are above the current stock price of $476.58, the spread is taking advantage of the stock's upward momentum. If the stock price is $500.00 at expiration, we can benefit from the 15-Dec-23 call, which we sold, expiring worthless, and the option that we are long, the 29-Dec-23 call, will still have time premium built in.
Since we do now know what the exact implied volatility will be on December 15, we can use our historical data to make an educated estimate to help us calculate the value of the 29-Dec-23 option. Applying the median historical implied volatility of 36.3 from similar options, the theoretical value of the call is 14.14 at the date of the 15-Dec-23 expiration. Using the above assumptions gives us a potential upside of +434% for this calendar spread.
NFLX Calendar Spread Value vs. Market Price
According to Market Chameleon estimated value, NFLX Calendar Spread is trading at a 34% discount to historical benchmark.
If we use historical data to measure how similar spreads in NFLX were priced in the market, the 4-year average price was 4.02, with a high mark of 9.25 and a low of 2.22.
Currently, the calendar call spread is bid at 2.35 and offered at 2.65. The midpoint of the spread is 2.50.
If we use 4.02 as our historical fair value benchmark, the current market ask price is at a 34% discount, while the current market midpoint represents a 38% discount.
|Current Price||Historical Values of Similar Spreads|
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