Netflix disappointed. In episode 479 of Options Playbook, Brian Overby reviews what happened to Monday’s speculative Netflix trade, protects his own shares, and puts on a new earnings trade in Meta. Netflix fell about 5% after earnings and broke below the $65 support level he had been watching, though the drop was smaller than the options had implied. Brian reminds viewers that the expected move runs through the end-of-week expiration, not just the day after the report. Monday’s trade — selling a November 65/61 put spread to pay for an 80 call — would now cost about $1.17 to close after being opened for a small credit, a loss of about $1.12. He’d close it rather than speculate on a rebound. His lesson: because the put spread went out 30 days, its time value cushioned the loss. That’s why he sells put spreads further out in time. Brian also owns Netflix shares he added at higher prices, so he collars them. Going about 30 days out, past the midterm elections, he buys the 64 put and sells the 69 call for a net debit of about 25 cents. If Netflix breaks lower, he can sell at 64; if it rallies to 69, he’d roll the call out in time. With implied volatility back down to about 30%, he notes protection has become cheap. Then he turns to Meta, which reports after the close. The stock is near $709, between roughly 690 support and 796 resistance. The at-the-money straddle implies a move of about $47, or 6.6%, by Friday. He builds an open-wing call butterfly: buy the 715 call, sell two 730 calls and buy the 737.50 call, for $3.50. The trade profits if Meta rises into the 715–737.50 area and still makes a little if the stock blows through all the strikes. He chose an expiration that includes the weekend to give the trade more time. He finishes by saying Amazon, with AWS and a reasonable valuation, looks like the most bullish earnings setup still to come. Key takeaways: – Close losing earnings trades quickly instead of hoping for a rebound. – Longer-dated put spreads keep time value that softens losses. – A collar can protect shares cheaply when volatility falls. – Open-wing butterflies give a defined-cost bet within the expected move. Options involve risk. This episode is educational and not a recommendation. |
