Bad bull movie on Netflix ($NFLX)? Here’s your trade. (October 20, 2020)
NFLX
Netflix ( NASDAQ: NFLX ) reported earnings after the bell and let’s just say the price action, let’s just say the bulls weren’t really feeling too cutie after that. This is what happened when the company reported earnings. So what the heck do you do with this?
I was explaining in a little more detail to our Stock Market Mentor peeps here, that the options market had implied a pretty big move on this, as typically you would see. The implied move from the options market was $39.00, right? So if you take the 525.00 close and go down $39.00, what do you get? Well, you get about 485.00; 485.00, 486.00.
Well, guess what the market hit after hours? Right here at 486.00; and so the reason this is significant is that when you are looking at an implied move on a stock what matters is the maximum. It matters like what the maximum is that the stock is going to go. If it goes further than that, if the stock, say, runs below 486.00, maybe down here, here, or here; you don’t say, oh my gosh, that’s really bad. I have got to sell. Or even worse, oh my gosh, that’s really bad. I have got to short this stock this is awesome.
No, you have to look at this like a rubber band, You have to look at it as a rubber band that the maximum stretch, healthy stretch, of the rubber band is down to 486.00. That is kind of where you would expect the rubber band to start giving some significant resistance. If it falls further than that, now the rubber band is really stretched and all you need is a little let-up of supply and, boom, you will get a big snapback; it’s called a snapback rally.
You get a big snapback if the stock makes an extreme move below 486.00 and then the sellers dry up; because at some point everybody is going to sell all that they want at that low level. And then at that point the demand is going to kick in and the stock is going to start screaming higher.
Now, is this a prediction? Only in this way, if the stock trades below 486.00, let’s say it opens at 480.00 or something like that, then yes, you can hold me to that, I think that’s a prediction that the stock is going to rally tomorrow.
What if it’s trading tomorrow where it is right now? Is there a trade there? I don’t know, I can’t predict that. I am not going to predict that. I am just saying that the max move is down to 486.00. If not when, if the stock trades below that, then we can have a nice move to the upside. If it doesn’t then it doesn’t. Maybe you get a little bit of a lift but as I look at this chart right here. Do you know what I see more than anything else? I just see a mess.
I see a stock that is kind of money sucker, that it doesn’t really have a trend. It’s got these little short-term moves but these aren’t the ones you want to make money on. This is a stock that is in a very, very wide horizontal channel. And when I see this type of thing what I really think about more than anything else is, maybe this is a top. So there you got your trade, maybe, it depends on what the stock does.
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