Oct 2021: NFLX $620 – $625 Bull Call Spread | Mean Reversion Trading Using Options

Oct 2021: NFLX $620 – $625 Bull Call Spread

Stock

NFLX

Trade Structure

$620-$625 Call Spread

Trade Date

10/20/2021

Price Paid

$250

Expiration Days

11/19/2021

Markets are literally melting up!

We are on week 6 of back to back winning trades and so far where we literally had 100% winners every week. We had only 1 loser which I cut at 50% loss recently. But next week is shaping up with 99% winners again. Our group has dropped our market exposure to 15% – 20% (compared to the usual 30% that I trade at). This way we can continue to take advantage of green markets but at the same time keep our market exposure on the lower end.

Winners1a | Mean Reversion Trading Using Options

THIS IS A DELAYED TRADE FOR EDUCATIONAL PURPOSES ONLY.

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Trade Rationale

NFLX had blow out earnings, but the stock was slightly under pressure the next day. With most of the earnings trades, you will find some level of judgement and experience coming into play. On any trade that I take right on the day of earnings, it will always come down to watching the price action on that day. I watch the daily candle and see signs of stabilizing before taking these trades. A solid red candle is usually a sign of danger and it is best to wait for another day on those trades. A candle which starts looking like a DOJI with a small body and long wicks are the best indicators of downward pressure dying off. But there is a lot more art than any science to this. You just need to keep watching and learning to develop your own feel for these trades.

NFLX_620_625_CallSpreadOpen | Mean Reversion Trading Using Options

Trade Selection Criteria

Overall market movement

This is a post earnings trade, the individual stock’s price movement is more important than the overall market.

N/A

No Earnings or Significant News

This is a post earnings trade and earnings were announced before market open

CHECK

Bollinger Bands outside Keltner Channels

Bollinger bands are clearly outside Keltner Channels

CHECK

RSI Analysis

Trade was taken purely based on price/action

N/A

ADX Analysis

Trade was taken purely based on price/action

N/A

Trade Analysis

I pretty much caught the bottom on this trade. NFLX immediately took off in my direction after putting on this trade. It did give up a significant amount of these gains later on but the beauty of debit spreads is that you only need a $5 move in the trade for you to double your money.