To The Moon

After-market on July 18th, streaming giant $Netflix(NFLX)$ will release its Q2 2024 earnings, kicking off the tech earnings season.

Netflix stock has had its ups and downs this year but overall, it’s up 34.83% as of July 16th, closing at $656.45.

Analysts predict Netflix will report Q2 revenue of $9.533 billion, up 16.44%, with earnings per share expected at $4.74, up 44.17%.

There are 33 analysts covering the stock, with an average target price of $675.71.

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While the stock has been steadily rising, all eyes are on Netflix's net subscriber growth. With recent moves like ad-supported subscriptions and crackdowns on password sharing, investors wonder if Netflix can keep attracting new users and maintain a competitive edge.

1.Q224 Earnings：User growth remains in focus

Looking back at Q1, Netflix delivered stellar results: $9.3 billion in revenue, $2.3 billion in net income, and earnings per share of $5.28, a whopping 60% increase year-over-year. The highlight was adding 9.3 million new subscribers, nearly double Wall Street's expectations, bringing total subscribers to a record 269.6 million by quarter-end.

However, Netflix announced it will stop reporting quarterly member numbers and ARPU (average revenue per user) starting next quarter, instead focusing on milestone user numbers annually. They also added yearly revenue guidance, including operating profit margins and free cash flow forecasts, along with quarterly revenue, operating income, net income, and EPS forecasts.

They cautioned that typical seasonal factors may slow Q2 subscriber growth compared to Q1, hinting at a potential slowdown. Post Q1 earnings announcement, Netflix stock dropped over 9%.

2.How did Netflix historically performed on earnings day?

According to Market Chameleon, over the past 12 quarters, Netflix has had a higher probability of declining on earnings day, about 58%, with an average price swing of ±11.6% — ranging from -35.1% to +16.1%.

Currently, the implied move is ±8.8%, suggesting options markets expect an 8.8% swing post-earnings. Compared to the previous 4 quarters' average move of ±11.1%.

In this upcoming Netflix earnings scenario, you can take advantage of its volatility with options strategies.

3. What’s a Wide Straddle Strategy?

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In a long wide straddle, you simultaneously buy out-of-the-money call and put options. The call option’s strike price is higher than the current market price, while the put option’s strike price is lower.

This strategy has significant profit potential: if the stock price goes up, the call option theoretically has unlimited upside, and if it goes down, the put option can profit. Your risk is limited to the premiums paid for these options.

For a short wide straddle, you sell both an out-of-the-money put option and an out-of-the-money call option. This is a neutral strategy with limited profit potential. It works best when the stock price trades within a narrow range around the breakeven points. The maximum profit equals the premiums received for selling the two options, minus transaction costs.

4. Netflix short wide straddle strategy case

Wide straddle options are suited for volatile markets where the direction is uncertain, offering a cost-effective way to manage risks from market changes. Get ready to make the most of Netflix’s earnings buzz with these strategies!

Step 1：Sell a $730 strike call option for $588

Step 2：Sell a $580 strike put option for $337.

Both options expire on the same date.

In this scenario:

• If the stock price rises above $730, the sold put option profits while the sold call option loses.

• If the stock price drops below $580, the sold call option profits while the sold put option loses.

• If the stock price stays between $570.75 and $729.25, both options earn a profit.

Wide straddle options summary

Wide straddle options are best suited for volatile markets where the direction is uncertain, offering good protection against market fluctuations. They have lower overall costs due to selling the higher strike call option. However, potential gains are limited by the higher strike call option sold.

Overall, wide straddle options are ideal for traders expecting significant market volatility but uncertain about market direction, aiming to reduce costs.