Netflix (NFLX) Trade Alert
Action to Take:
Sell to Open the NFLX April 21, 2017 $130 put
Buy to Open the NFLX April 21, 2017 $125 put
For a net credit of $0.90 or more
Max capital at risk per spread: $500 – $90 = $410
Return on capital at risk: $90/($500 – $90) = 22%
Days to expiration: 39
I suspect most of you are familiar with Netflix, the blue-chip technology stock that started its business renting and distributing DVDs via U.S. mail.
Today, that business is quite different. Instead of DVDs, everything is streamed over the internet directly to your home. In fact, I just read an article that said more people have access to Netflix today than they do to a digital video recorder (DVR). With most video content on demand, there is little need for recording.
Netflix’s growth has been extraordinary. The chart below shows Netflix’s total subscriber growth. In 2016, Netflix reached about 50 million U.S. subscribers. But what is more impressive is its rapid international growth… which has become 47% of its total subscriber base.
On the back of this strong growth, Netflix jumped from a trading level of around $130 to a new floor of around $140 in mid-January this year.
I expect subscriber growth will continue in 2017. This strength gives us a chance to put on a bull put spread with a great return. We are able to put on the $130/$125 bull put spread for about $90 per credit spread… resulting in an incredible 22% return on capital at risk in only 39 days. This is too good to pass up for April expiration credit spread trades.
Editor, Four Point Trader