Why Netflix Options Are a Better Buy Than NFLX Stock
Editor’s Note (12/26/19):
When we published this article in October 2019, I wrote that Chad Shoop had just recommended a play on Netflix Inc. (Nasdaq: NFLX) to his Quick Hit Profits readers.
They closed the first half of that position on December 19 for a 50% gain! Chad instructed his readers to lock in those gains and let the remaining half run.
That was one in a string of gains since October:
- 50% on Best Buy Co. Inc. (NYSE: BBY).
- 50% on Qualcomm Inc. (Nasdaq: QCOM).
- 198% on Target Corp. (NYSE: TGT).
- 99% on Kansas City Southern (NYSE: KSU).
- 100% on Lam Research Corp. (Nasdaq: LRCX).
- 135% on Tesla Inc. (Nasdaq: TSLA).
- 180% on Nvidia Corp. (Nasdaq: NVDA).
It’s not too late to join Chad’s readers and set yourself up for your most profitable year yet!
Click here to learn more.
Streaming TV giant Netflix reported earnings on Wednesday after the market closed.
It crushed analysts’ estimated earnings per share (EPS) by 41%.
The market was thrilled — and it rewarded the stock.
Shares were up 8% on Thursday morning.
If you owned 100 shares of Netflix, your $28,628 grew to $30,449 overnight.
But as great as that surge was … Netflix investors could have made even more money.
They could have tied up less cash — and magnified their profits at the same time.
Today, I’ll show you exactly how by comparing two investment strategies. The one typical Netflix investors use … and the profit accelerator.
For the sake of this exercise, let’s say your portfolio is valued at $100,000.
After Netflix’s earnings beat, you’re convinced the stock is going to skyrocket in the next few months…
Strategy No. 1: Buy Netflix Stock
You could have bought Netflix’s shares around $300 on Thursday. So, let’s say you bought 100 shares. That would tie up $30,000 — 30% of your portfolio. You’d have $70,000 left to invest in other stocks.
Now … let’s look at what could happen to your investment based on your prediction.
For simplicity, let’s say you were right, and the stock goes up another 20% by the end of the year.
You made $6,000 — or 20% — for risking $30,000. That’s a nice sum.
What if you were wrong, though?
Let’s say Netflix plummets 20%.
This might be enough to shake your faith in the stock, so you sell.
You would sell your shares for a loss of $6,000, or 20%.
You’d have $94,000 of your portfolio left for investments.
But there’s another option…
Strategy No. 2: Buy Netflix Options
You might feel tempted to stop reading now because you’ve heard that options are risky.
But if you stay with me, I’ll show you how options are less risky — especially when you follow a proven system.
I’ll also show you that options require you to devote far less of your portfolio.
So, let’s say that you decide to buy one January 17, 2020 $300 call contract on Netflix for $30. (For now, just know that a call option contract is an agreement to buy 100 shares of the stock at a set price by a set date — in this case, January 17.)
As Netflix’s share price rises, so does the value of your call options.
This call contract represents 100 shares of Netflix. If you bought one $300 call contract for $30, it would cost you $3,000 ($30 times 100).
You’d be controlling the same number of shares as in the first example — but only tying up 3% of your portfolio.
You’d have $97,000 left to invest in other stocks or options!
But let’s see what would happen if the stock rises — and if it falls — in the weeks after you buy the option.
If, as in our first example, the stock rose 20%, you could sell your January call option for $60 and pocket a profit of $3,000.
That’s a 100% gain — and you only risked $3,000!
That’s why I say options are profit accelerators. They let you leverage a smaller portion of your portfolio for bigger percentage of gains.
In our first example, we also discussed what would happen if you were wrong about Netflix, and its stock fell 20%.
In this case, your call option would expire worthless by the expiration date. You would suffer a 100% loss on the position. But your portfolio would only be down $3,000. You risk what you paid for the contract. It’s the absolute maximum you can lose.
You’d be in a better position than our first example because you’d have $97,000 of your portfolio left for investments.
Chartered Market Technician’s Winning Options Strategy
So, if you think options might be right for you — and if you want to profit from stock’s major post-earnings moves — you can buy the stock (or options) ahead of the announcement.
But that amounts to little more than gambling.
Our own Chartered Market Technician Chad Shoop has a better choice for you.
Chad’s Quick Hit Profits strategy is the winning result of thousands of hour of research and analysis.
You see, Chad has a list of stocks — he calls it the Winning 76 — and he’s charted their price action after earnings announcements for the past decade.
He recommends options on stocks after they announce earnings — based on their historical performance.
If you’re not convinced, take it from Karen A., just one of Chad’s many happy readers:
On Thursday, Chad recommended an option on Netflix’s stock to his readers — and it’s not too late to get in!
That’s just one of a dozen or more recommendations Chad plans to make this earnings season.
You can learn more about Chad’s system here.
Watch Our 4 YouTube Videos!
We have more great content to share this week!
- Chad Shoop’s four-minute video, “Corporate Earnings Beat Investors’ Expectations: Don’t Fret a Recession.”
- Internal analyst Anthony Planas’ new 10-minute Marijuana Markets POTcast: “HEXO Disappoints, Aphria Delivers & TGOD Runs Out of Cash.”
- Apex Profit Alert editor John Ross’ five-minute video, “VALE: Trade Price Patterns & Tip to Unlock Short-Term Gains.”
- And Alpha Investor Report editor Charles Mizrahi’s seven-minute video: “Wall Street Expert Reveals Secret to Investing in Stocks.”
We always like to hear from you!
Are you an options trader? Tell us about your biggest win below!
Senior Managing Editor, Winning Investor Daily
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