The smart way to play Netflix Earnings

Netflix earnings is scheduled to be released after the closing Bell on 1/25/11.  If you know anything about this stock, you know it usually moves on earnings.  With speculation about growth of the company, overseas expansion and even a potential buy out, this is one earnings play you won’t want to miss.

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Here’s how I suggest you play the Netflix earnings report.  The stock is currently trading at $94.78.  Looking at the chart we see Netflix has downside potential of (-29) to roughly $65.63 and upside potential of (+23) to roughly $117.97.

I suggest using a Strangle (a strategy where you buy a call and a put at two different strike prices).  With the stock trading roughly at $95.00 the best way to play this would be to by the $90 put option trading at $4.70 and at then buy the $100 call option currently trading at $4.95 (both set to expire this Friday 1/27/11) for a total cost of $9.65.  Now your in the trade and covered on the upside in the event earning news is positive as well as the downside in the event Netflix disappoints.

With the Stock trading at $94.78 and your cost to cover both sides of the trade totaling $9.65 your break-even  points on the stock would be Netflix trading at $104.43 on the upside and on the downside  $85.13.  Anything outside of these two parameters and you can ring the cash register for profit.

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