A rally now in its sixth day has tripped a bullish entry signal that could be good for a ride to as high as 411 (see inset). The midpoint pivot at $360 (red line) is a logical minimum upside target in any event, implying $25 of upside potential in the days or perhaps weeks ahead. Call options are trading with an implied volatility above 45, which for a $300 stock means they don’t come cheap. Our best bet would be a play on the $360 strike using butterfly spreads. Accordingly, I’ll recommend bidding 0.20 for twelve November 22 (weekly) 350-360-370 butterflies. 0.25 is the net debit that would result from shorting two November 360 calls, buying one November 350 call and one November 370 call. The ‘fly settled yesterday at around 40 cents on the closing marks, but it could have been bought cheaper than that with a little work.
If by week’s end subscribers have been unable to fill the order, we’ll try another approach, legging into the butterfly by buying November 350-360 call spreads 1:1 when the stock is bottoming near a Hidden Pivot target, then shorting a like number of November 360-370 call spreads at a targeted rally top. This would take more work than the first approach, but we would try to make it worth our while by legging into the position for a net credit. In either case, the end result would give us very cheap leverage on the rally to 360 that I expect. _______ UPDATE (4:23 p.m. EST): The butterfly settled at 0.65, well out of range. We’ll try again Friday but shift to Plan B if unsuccessful. _______ UPDATE (November 11, 7:20 p.m.): With the stock treading water after a $15 surge, the butterfly settled Monday at $1.10, moving farther out of reach. We’ll try the other approach, bidding 1.90 for the Nov 350-360 call spread, 1:11, contingent on the stock trading 337.50 or higher. Below that price, lower your bid for the spread by 12 cents for each $1 drop in the shares. That means you should bid 1.78 for the spread if NFLX is trading near 336.50 (or 1.84 if the stock is near 337.00).