To The Moon

$Netflix(NFLX)$'s strong Q3 earning has made it 14% surge after hours. From last Thursday, it bottomed from 215 to 240 last close, and now 275, how shall we participate in Netflix's?

Fundamentals: Netflix's rise is not over

Plunged twice, Netflix is quite sensitive to net subscribers, the core indicator of is the basis for pricing. Q3's positive growth beat consensus over 150%. Of course, the market was ecstatic.

At the latest guidance, NFLX's Q4's net subscribers are supposed to increase 4.5 million, higher than market expectations. Good news too.

But netflix also claims no longer announce subs too, which implies investors should pay attention to indicator monetization ability.

Advertising is the direct reason. Apparently, traditional cablenet would hurt most when Netflix steps in. But still, with no one knows the limits of Netflix's advertising business, no accurate valuation would be made.

Stock price is simply what's investors' believes. Hedge fund managers have being opening positions since Q3, makes its stock price stronger than others.

When institutional investors see the fantastic earning, more money should come.

About Trading: Buy stocks or Trade Options?

1. Buy stocks, with covered calls

If you have strong believes that, it can continue to soar in the short term, after the increase of 14% in after-hours, then buy stocks directly or call options without hesitation (IV will decline after financial report and the cost performance will improve).

Earnings Enhancement Tips: You can sell covered calls at the target price to enhance your earnings.

For example, if you plan to start at $275 and aiming at $300 within one month, you can buy another 100 NFLX shares and continue to sell the $300 Call due on November 18th to enhance your earnings.

2. Sell Naked Put

This kind of trade is suitable for situations where you believe it is not to fall sharply, but also not rise a lot in the short term.

If your risk appetite is low, you can choose OTM Put at a lower price, such as 240.

If your risk appetite is higher, or even want to open stock positions, you can choose the Put ATM or ITM, such as selling Put for $270 or $280.

Selling put options to open positions is also Warrent Buffett's favorite. The advantage is taking time value at the same time.

3. Collar strategy

This kind of trade is suitable for bullish, but avoiding extreme retracement.

It is the a lot of stocks, with selling a covered call option at the upper end price and buy a put option at the lower end price at the same time. For example, buy 100 positive shares of NFLX for $275, sell Call for $300 on November 18, and buy Put for $265 on November 18.

4. Iron condor

This kind of transaction is suitable for the situation that the stock price fluctuates within a certain range.

The essence of Iron Eagle is the upper and lower sets of "Credit Spread", selling options within the higher price (royalty income) and buying options outside the higher price (protection) in the same period, so its maximum loss is limited, and its maximum income is also limited.

At the same time, the stock price cannot rise or fall at the same time, so the vertical spread strategy in both directions will only charge one margin.

For example, if you think NFLX's share price will fluctuate between 260 and 300 in the coming month, you can make an option Iron conder strategy that expires on November 18:

Sell call of $297.5 and buy a call of $302.5;

Sell $262.5 Put and buy $257.5 Put.

Among the four methods, the first two are more intuitive and suitable greenhands, while the latter two methods need more experience. But that doesn't mean complicated ways are more profitable.

Personally, I am optimistic about the performance of Netflix's share price at the end of the year, new advertising business is promising.

However, due to the restriction of the US stock market environment, I don't think NFLX will continue to soar.Therefore, a more aggressive naked sale of parity Put or protected covered options may be a cost-effective method.

Happy Trading!