Unpacking the reasons behind this winning Netflix put option
Last week, streaming giant Netflix Inc (NASDAQ:NFLX) delivered a major gain to Schaeffer's Expiration Week Countdown subscribers. Those who heeded our August 430-strike put recommendation walked away with a 215% profit in just one week. Below, we'll dig into the telling points behind this winning bearish trade.
Netflix stock had formed a head and shoulders pattern at the time of our recommendation on Aug. 13, with the right shoulder bear flag giving way during the prior session. The shares had also give back their 50-day trendline, broken below the $430 region, and breached their 10-week trendline for the first time in five months, with a failure at the +50% year-to-date level on the charts as well.
There were some contrarian factors at play, too -- a push below the 415-strike open interest (OI) level could have made the 400-strike a heavy magnet. Plus, NFLX’s 10-day call/put volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stood at 1.31 and was rolling over.
Options were cheap then, per the security's Schaeffer’s Volatility Index (SVI) that ranked in the 3rd percentile of its 12-month range, making it the perfect opportunity to buy puts.
Netflix stock continued to move lower during standard expiration week, and hit its lowest level since June on Friday, Aug. 18. We exited the position that same morning, allowing subscribers to triple their money in not even five trading days.