SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

How To Protect NFLX Shares Before Earnings


NFLX is scheduled to report earnings on Monday July 19, 2016. I was asked the following question on one of the online forums: "What option to trade to protect NFLX shares being held thru earnings on Monday"? My answer was: "That depends what level of protection you want".

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?

 

 

Start Your Free Trial

  

 

 

 

Edited by SteadyOptions

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • The Minimum Effective Dose (MED) For Cash Flow Planning

    Financial planners can usually give generic advice that will be appropriate for the majority of Americans, and that’s the goal of this article. If we can get the fundamentals of cash-flow planning right (where to put your money after you earn it and pay your taxes and bills), we’re 80% of the way towards maximizing our financial situation.

    By Jesse,

    • 0 comments
    • 250 views
  • Are You Breaking Even? Or Losing?

    Among the good reasons to trade options is the need to meet or surpass your breakeven yield. This is the yield you need just to preserve your purchasing power; and it higher than most people think. In fact, most people relying on moderate to conservative yields from stocks, mutual funds, real estate and savings accounts might be earning well below this breakeven level.

    By Michael C. Thomsett,

    • 0 comments
    • 276 views
  • Buy When You Have the Money, Sell When You Need the Money

    Money can be quite an emotional topic for many of us. Emotions can enhance our experiences and relationships in many ways, but they can act as mental roadblocks especially when trying to make wise financial decisions. One of the most common emotional roadblocks I come across when working with individuals is an unwillingness to invest idle cash to meet long-term goals.

    By Jesse,

    • 0 comments
    • 624 views
  • Strategy Selection vs. Risk Management

    "A billion here, a billion there, and pretty soon you're talking about real money." Everett McKinley Dirksen. Let’s begin with the bottom line: When I talk to anyone about the concept of choosing an option strategy (or two) to adopt for trading, I stress that the strategy should have certain characteristics.

    By Mark Wolfinger,

    • 0 comments
    • 317 views
  • Blending Anchor Strategy

    Anchor and Leveraged Anchor investors frequently ask why the strategy only trades SPY and SPY options rather than individual stocks, other indexes or commodities. We avoid individual stocks because of tracking and divergence issues.

    By cwelsh,

    • 0 comments
    • 410 views
  • Fundamental Volatility and Stock Prices

    Every options trader must wonder whether any connection will be found between the company's fundamentals and stock prices (and in turn, option valuation as well). Because options are derived from stock price behavior, the analysis of stock movement is crucial to selecting options wisely; and that relies on volatility in the reported profit and loss over several years.

    By Michael C. Thomsett,

    • 0 comments
    • 436 views
  • Bullish Short Strangles

    A bullish short strangle sounds like a complicated strategy, but it’s really quite simple for those familiar with option terminology. A short put is combined with a short call to where the position starts with some amount of positive delta overall. This distinguishes itself from a delta neutral strangle, where both the short put and short call are sold at the same delta.

    By Jesse,

    • 5 comments
    • 692 views
  • Eight Mistakes Every Forex Trader Should Avoid

    The forex market is currently the largest financial market in the world and, due to its highly liquid nature and low barriers to entry, is only expected to grow. Becoming a forex trader requires minimal effort and with a decent internet connection, a laptop or computer, and some spare money to invest, you can start in no time.

    By Kim,

    • 0 comments
    • 509 views
  • Put/Call Parity - Two Definitions

    Put/call parity is a term options traders use to mean one of two things. The simplest definition and the one most applicable to most options traders compares the similarity in the bid/ask spread and the net debit or credit resulting from this.

    By Michael C. Thomsett,

    • 0 comments
    • 559 views
  • Put Selling: Strike Selection Considerations

    When selling puts, such as we do in our Steady Momentum PutWrite strategy, there are many questions a trader must answer: What expiration should I use? What strike should I sell? Should I choose that strike based on delta or percentage out of the money?

    By Jesse,

    • 0 comments
    • 592 views

  Report Article

We want to hear from you!


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

Options Trading Blogs