Football season is about to come to a climactic finish in Indianapolis this weekend, with the long-awaited Giants-Patriots matchup for Super Bowl XLVI. Whether or not you’re a fan of the teams, as a fan of the sport you understand the skill, precision and dedication that is required of each player on a winning team.
And every day that you have money in the markets, you are developing your own skills and strategies in offense and defense. Whether you’re on the lookout for money-making opportunities, or trying to preserve the cash you’ve collected, you can probably appreciate how hard the quarterback’s job really is – because you do it not with pigskin but with your cash each day that the markets are open!
‘If it’s Gotta be, it Starts with Me’
Volatility may be rather low overall in the markets right now, but there’s a great deal of it surrounding individual stocks. And because volatility truly is an option trader’s best friend, sometimes we have to go on the offense and seek it out in order to make quick gains in an otherwise-calm market … and to regroup and get repositioned in order to keep them and turn them into bigger wins.
As they say, “Offense sells tickets; defense wins championships.” So today, I have two option trade ideas for you that will help you put a little of both into your trading account. And with the volatility in both, the timing is as perfect as a five-step drop and slant pass.
Trade #1 — Netflix
Netflix (NASDAQ:NFLX) has really caused a lot of consternation for investors on both the short and the long side. Now, in my opinion, over the long haul Netflix is not going to survive. It just won’t have the money to compete in the long term, and initiatives like original programming won’t save it. None of this changes the fact that NFLX is likely to move higher in the near and intermediate term.
If you really parse the latest earnings report, there is so much bad news hidden that a lot of suckers didn’t see and, thus, they’ve started buying back in. With a low float, this turns Netflix into a momentum trade.
So how can you get in on the action without exposing yourself to risk on either side? What if the momentum wanes? What if it doesn’t? What if the stock collapses?
The easiest thing to do is avoid buying the stock altogether and just go with buying a put and a call to play the stock’s movement in either direction. I think Netflix will continue to be a momentum play in the near term.
I’d buy the NFLX March 130 Call for $7.20, because a $720 investment is much less than the $12,000 you need to buy 100 shares and still see the same profit if the stock moves above $130. I see resistance at the 200-day moving average at $142.
If the stock hits that price, you can exit with a $500 net gain, or keep the dice rolling because if it pierces that price point on high volume, the next meaningful resistance is $200. So you could also purchase the NFLX March 150 Call for $2.75 to take advantage of that scenario.
On the defensive side, you can play the expected collapse by reaching into next January and buying the NFLX Jan 100 Put for $20. Netflix hit $62 recently, so you’d see a net gain of $1,800.
Frankly, we’ll know by January what the company’s fate will be. You might want to wait for the near-term pop before buying any puts, though.
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