How NOT to Trade $NFLX Earnings

[Kim]

NFLX announced earnings today after the close. Couple hours before the market close, I got a following trade alert from one of options sites I follow:

Trade: SELL -1 IRON CONDOR NFLX 100 APR 15 520/522.5/427.5/425 CALL/PUT @.91 LMT [TO OPEN/TO OPEN/TO OPEN/TO OPEN]

Trade Explanation: For the Volatility Advisory in NFLX, we are selling the Apr 427.5 puts and 520 calls and buy the Apr 425 puts and 522.5 calls for a net credit of $0.91 to open.

Underlying Price: $474.22

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[Antipodean]

My thoughts exactly, pre earnings volatility levels often give rise to 4 - 6 x the normal daily estimated move on many popular stocks so relying on volatility crush alone without consideration for the price move is a futile strategy.

 

A safer approach used by some, is to sell an unbalanced butterfly (i.e. a short butterfly) with a narrow gap in the profit zone ATM, despite having long vega, it at least offers protection provided the move is significant.