NFLX Earnings Trade
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NFLX Earnings Trade

John F. Carter - January 20, 2016

This is John! Let's take a look at NFLX. So Netflix's earnings came out. We went from $1.08 down to $1.03, shot up to $1.23, and now as I'm writing this I'm talking about $1.14 or so. What's interesting about this: in terms of an options strategy this is this is exactly what we wanted. Of course, we'll see where we are in the morning, but the idea of something like this with earnings is that "Hey, the market's going down, let's buy puts on NFLX." Um, no. With earnings, it's all about the IV crush, no matter what the market is doing.

So how do you set that up? You can see here, I accidentally did the wrong trade at the close. When I first did it, I did the $1.08, but I did it 10 days out. What I wanted to do was the one 3 days out. The one 3 days out was $9.40, the one next week was $9.35. That's okay, it's not the end of the world. You're still going to get a little bit of IV crush, just not as much. But the idea is that tomorrow--so, we closed at $107.89, we sold the $108.00 spots and protection, and if tomorrow we open up around here, that would be great. I mean, at this point, if we open up below 120, give or take, and above 95, give or take, we'll make some money on this, and the closer we are to 108, the better.

So the next question is, when do you get out of this? Well, if this gaps up tomorrow 112, 113, the first thing I would do is try to buy back the short puts. Now, if they're a nickel, that'd be great. Tomorrow is only Wednesday, so I think it would have to be a really big gap up to do that.

Just remember that tomorrow you want to buy back--if we gap up, buy back those puts. Now, if there's a lot of premium left in the 95's then just buy back the whole put spread. But if, like, these drop to a nickel, well, then, who cares? Leave those sitting there, because that's your lottery ticket if NFLX just crashes. But buy back that short put, in case it gaps up and then pukes.

The other way to look at this: "All right, we sold this for $9.40, what can we buy it back at? Well, if we have an opportunity to buy it back at, say, half off like $4.20, then who cares? Just buy it back and be done with it. All right? So that's kinda the strategy there, for Netflix. Let's just take a quick look at Google here. Google on the 195 minute chart, and you can see it's starting to try to turn higher. On a 39 minute chart, we got the blue, which means that we've got a positive kind of divergence there in momentum. We'll see where it goes. It's hard to get too excited about the bullish side here, but just the idea that instead of collapsing we might get a little bit of a bounce is intriguing. So we sold a put credit spread on that. If we look here at the Nasdaq futures, we'll look at a daily chart, and then we'll look at a 39 minute chart. On the Nasdaq futures, we're kind of pounding into this 4,127 treeline. But you can see that we did get an early warning that the momentum is trying to change here.

We are just at the cusp in these markets, where everything in terms of timing and in terms of the length of this move down--points towards a bounce. It doesn't mean the bottom, it just means a bounce, like 4,416, or whatever it is. If we can't bounce, and from here--it could get really ugly. This could be more of a, "Wow, we're looking for a 30% decline." Okay?

So at this point, I like the idea here of essentially focusing more on kind of short-term trading of futures. I'm not trying to catch some huge move here. All right? Little things like this, where we get these little no-brainer setups, you can follow along, your risk is small, you can stay in the trade for as long as it's valid, right? One contract, $120. That adds up after a while. You don't have to sit there and wonder what's going on, right? And it doesn't matter if it's long or short. Obviously, in this market, long trades don't tend to last very long, but it's not like there's not opportunities there. Plus, if we get a nice short covering rally, it can actually turn out to be something fairly good. I think that in this market, understanding the futures game here --so far this year, futures has been the best-performing account. I'd set up four accounts at the beginning of the year. A 5k, 15k, 45k, and 185k. The 15k futures account is up 20%, and after today it's up about 22%, and continuing to just grind it out. Base hits. No need for home runs.

A reminder: This has been the long-awaited class. I have not taught a futures trading class in two years. I'll be doing one this Saturday, January 23rd, 12 pm - 5 pm CST. If you don't know anything about futures, you can come in here and learn everything that you need to know--and not the confusing stuff. You don't really need to know what notional value is, right? I mean, we'll tell it to you, but that's not the important part. The important part is from a trading perspective. How much risk do you take? How difficult is this to learn? What strategies work? Do you hold overnight? At the end of this class, you can sit there and just kind of do what I do during the day. I mean, when I'm in the room, I'm calling out futures trades. We've had a really good win ratio. People are asking, "Well, what are the setups and what are you doing?" Well, that's we're going to talk about on Saturday. And then we're going do three days of live trading just on futures, on Jan 26, 27, 28. It's $997, and that includes the Saturday class.

If you're all in, and you want to join our elite group, that's going to be in Austin, live, from Jan 31st through February 2nd limited to 50 people. There are a couple spots left. You can sign up for that--and this is all included. This is the kind of year where there are certain strategies that work the best. So far, what I'm seeing is that futures works the best. It doesn't mean that options don't have a place, it just means the more knowledge you have, the better. Let's work together and knock it out of the park. You guys have a good one! We'll see you at the next update.