Netflix has been a weak performer against the communication services sector it belongs to. The stock is down about 41%, while communications are up 6.7%. That is a loose comparison, since the sector holds a varied mix of names. Measured against its direct video streaming peers, Netflix still sits at the bottom of the group and is being beaten by nearly everyone else.
The chart
After the last earnings report, the stock gapped down and then followed a steady downward slope. A small bounce came off the recent lows near 7086, but it has been weak. Little of it turned into lasting gains heading into this earnings print.
The low point sits at 7086. Watching from a support and resistance view: a resistance zone runs from about 75 to 78, further highs sit at 82, and another gap and stopping point for price sits near 87. The 21-day exponential moving average, shown in teal, lines up with the trend line around 76, another level to watch.
The RSI trend line has broken, which is common going into earnings and not unusual. The volume profile shows heavy trading activity between 74 and 78, and again between 81 and 85.
The trade
Looking at the next month, the August 21st options series carries an expected move of plus or minus about 13.3%. That lines up with the 85 level on the upper end.
The setup is a call butterfly, plus one, August 21st, strikes 75/83/85, for a 210 debit. This is an unbalanced butterfly. In a standard butterfly the two short strikes in the middle sit an equal distance from the long strikes. This one is skewed on purpose. If price overshoots, a normal butterfly can turn a winner into a loser; the skew keeps a credit instead.
Max profit is 590 if the stock expires right at the short strike of 83. Max loss is the 210 debit paid, which happens if price runs past the 85 strike at expiration. Past that point the payoff flattens to a $390 profit. Break even sits 3.5% to the upside. With the expected move near 13.5%, an 85 print is well within reach. Reaching the flat 390 max profit area at 85 would take a 14% move.
Netflix reports after the close today.
