Netflix (NFLX) is one of the strongest stocks in the market right now and continues to put in new highs.

The Barchart Technical Opinion rating is a 100% Buy with a Strengthening short term outlook on maintaining the current direction.

Long term indicators fully support a continuation of the trend.

The market is in highly overbought territory. Beware of a trend reversal.

NFLX rates as a Strong Buy according to 30 analysts with 2 Moderate Buy ratings and 13 Hold ratings.

Netflix is considered a pioneer in the streaming space.

The company evolved from a small DVD-rental provider to a dominant streaming service provider, courtesy of its wide-ranging content portfolio and a fortified international footprint. Netflix has been spending aggressively on building its original show portfolio.

This is helping it sustain its leading position despite the launch of new services like Disney and Apple TV as well as the existing services like Amazon prime video.

Netflix streams movies, television shows and documentaries across a wide variety of genres and languages. 

Subscribers, both domestic and international, can watch them on a host of internet-connected devices, including television sets, computers and mobile devices.

In the Domestic DVD segment, Netflix delivers DVDs through the U.S. postal service from distribution centers located in major U.S. cities.

Today, we’re going to look at a bull put spread trade. 

A bull put spread is a bullish trade that also can benefit from a drop in implied volatility.

The maximum profit for a bull put spread is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

NFLX BULL PUT SPREAD

Implied volatility is currently sitting at 33.14% which gives NFLX and IV Percentile of 56% and an IV Rank of 23.77%.

Netflix’s expected move between now and June 20 is around 7.35% in either direction. On the downside, that would put NFLX stock at around $1035.

In other words, the options market is expecting NFLX stock to stay above $1035 between now and June 20.

To create a bull put spread, we sell an out-of-the-money put and then by a put further out-of-the-money.

Selling the June 20 put with a strike price of $990 and buying the $985 put would create a bull put spread.

This spread was trading yesterday for around $1.30. That means a trader selling this spread would receive $130 in option premium and would have a maximum risk of $370.

That represents a 35% return on risk between now and June 20 if NFLX stock remains above $990.

If NFLX stock closes below $985 on the expiration date the trade loses the full $370.

The breakeven point for the bull put spread is $988.70 which is calculated as $990 less the $1.30 option premium per contract.

Netflix has already reported Q1 earnings, so this trade should have no earnings risk if held to expiration.

Conclusion And Risk Management

One way to set a stop loss for a bull put spread is based on the premium received. In this case, we received $130, so we could set a stop loss equal to the premium received, or a loss of around $130.

Another way to manage the trade is to set a point on the chart where the trade will be adjusted or closed. That could be around $1050.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.