For full protection, buy ATM options ($98 strike) - all you can lose is the premium you pay (around $5 per 100 shares). So if NFLX will lose say $15, your puts will be worth $15, and you gain $15 minus the premium.
If you want just "black swan protection" - against catastrophic loss, you can buy 90 strike. It will cost much less (around $2), but also protects you only if NFLX goes below $90.
Another member suggested another strategy:
"Alternatively, NFLX volatility is pretty low. Expected move around $9 - don't know the cost basis, but this is what I would do: AUG +95p / -90p / -110c for zero cost.
Eg buying bear put spread and financing with 110 call. If NFLX goes down to 90, your loss (assuming 98 cost) is $3. Max gain at 110 is $12. Any outsized move down below 90 has no protection, and above 110 no gain."
This is also a viable strategy, but it will protect you only down to $90. If the stock collapses below $90, you are not protected.
Here are few other options:
Collar
Buy July 22 90 put
Sell July 22 105 call
You are protected below $90, and the gains are capped at $105.
Calendar
Buy August 19 90 put
Sell July 22 90 put
You basically buying the put expiring in 4 weeks and reducing the price by selling weekly put expiring the next week.
Advantage: reduced cost (only 0.80) and very nice gains if the stock goes down to ~$90.
Disadvantage: the spread will start losing money if NFLX crashes much lower than $90.
There is no "best strategy" here. You can construct the trade based on your outlook and risk tolerance. And this is the beauty of options - there are endless possibilities to hedge, speculate etc. It's up to you to decide what to do, based on what you want to achieve.
Want to learn more?
There are no comments to display.
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account. It's easy and free!
Register a new account
Sign in
Already have an account? Sign in here.
Sign In Now