from the desk of Dr. Terry F Allen

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Netflix is Ready to Break to a Fresh Record High

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

Netflix closed the past week out strong and looks ready to continue the upward momentum. Take a look at what the following analysts had to say about the stock – Netflix ‘Impervious’ To Coronavirus, Recession: Imperial Capital and Netflix Stock: An Easy 2x

Technicals

NFLX falls in a group of stocks that were quick to recover from the sell-off earlier in the year.The stock has been consolidating within a range since mid-April but the upward momentum seen over the last week or so, combined with a strong weekly close, tilts the odds towards an upward break, in line with the broader trend. To the downside, $416 is considered to be a major support level and has held the stock higher on a weekly close basis. This same level previously served as resistance, holding NFLX lower in 2018. A break above $455 would signal a bullish continuation that stands to attract more buyers and a potential acceleration in momentum.

NFLX Chart June 2020

NFLX Chart June 2020

If you agree there’s further upside ahead for NFLX, consider this trade which is a bet that the stock will continue to advance over the next five weeks, or at least not decline very much.

Buy To Open NFLX 24JUL20 445 Puts (NFLX200724P445)
Sell To Open NFLX 24JUL20 450 Puts (NFLX200724P450) for a credit of $2.24 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when NFLX was trading near $453.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will only be $1.30 per spread.  Each contract would then yield $222.70 and your broker would charge a $500 maintenance fee, making your investment $277.30 ($500 – $222.70).  If NFLX closes at any price above $450 on July 24, both options would expire worthless, and your return on the spread would be 80% (913% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates June 20, 2020

IBD Underlying Updates June 20, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

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I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

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