On CNBC’s “Options Action,” Mike Khouw suggested investors should consider a put spread calendar options strategy in Netflix Inc (NASDAQ: NFLX) ahead of earnings. The company is reporting earnings Oct. 16 and the options market is implying a move of around 10%. With the put calendar strategy, Khouw is betting that the move won’t be that big.
The company is facing increased competition and it is still burning cash, but Khouw doesn’t expect the stock to drop as much as it did on its last earnings result. He wants to sell the October $280 put for $12.50 and buy the January $280 put for $21.50. The trade would cost him $9 and he is hoping that the October $280 put is going to expire worthless. If that happens he would own the January $280 put for $9 and the breakeven for the trade would be at $271.
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