Do you see the big gap in the daily chart of Netflix (NFLX)? The gap is likely to get smaller. (October 21, 2014)
I want to look at Netflix ( NASDAQ:NFLX ) here. This is a stock that, as you know, just got crushed a few days ago. If you don’t, welcome to trading, I’m sure you’ll do fine. Yesterday, on Monday, the stock went as high as 369.00. Now today it was below that, but I’m looking at this as a pretty key level, we’ll just call it 370.00, here’s why: today the intraday low was 355.54, yesterday, basically the same, within a penny. We’re seeing these higher intraday lows and now we’re seeing these highs, the closers that are higher, so this stock is starting to fill the gap.
Over at Option Market Mentor we’ve got a couple of spreads going on this. We’ve got a bull put spread, a November bull put spread, where we are short the 330.00 puts and we’re long the 320.00’s. That’s going to be a nice trade, it’s already a nice trade, it’s up 20 percent. My bet is that’s going to be a 100 percenter.
But we also have a November bear call spread where I was planning on this thing not filling this gap, so we are short some 370.00 calls, and long some 380.00 calls. Now, the way this trade is working I’ll go ahead and close out this 370.00 call that I’m short, for a loss. My bet is that if this stock starts trading above 370.00 that long 380.00 call is going to be pretty profitable pretty fast; it would erase any loss that you take on the 370.00.
The bottom line is this; this stock is way outside where it should be. This three standard deviation is down here, this was a great trade to the long side, which a lot of traders at Stock Market Mentor made; we were on that last week. But now I’m looking at this and this is another good trade to the upside. It’s not a day trade, this is a trade where you’re buying it here at 366.00 and then in a week or two you’re going to be really happy that you bought it at 366.00.
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