Thoughts about the old Mag7

Remember when Netflix was a Magnificent 7 name? It was (and still is) the first of those companies to report earnings every season and the stock price would run up ahead of the report. Netflix ($NFLX) will report next week on the 16th after the close. Despite the price being nearly 50% off of it top from a year ago, it has started a little run into the event. It may just be a Dead Cat Bounce but there are some interesting aspects to this bounce. First it is moving over its 20 day SMA, somewhere it has not been for 2½ months. Its momentum is improving with the RSI making a higher high.

Those things alone might entice you to take a flyer on the stock into earnings. But there is more when we zoom out. The weekly chart shows the latest bounce right at the 200 week SMA. A standard play would be to buy the stock and use the June low around 70 as a stop loss. That is a potential max loss of about $6.50/share or 8.5%.

A cheaper way to express a long interest might be to just buy short dated options, like the July 17 Expiry chain. A July 17 Expiry 77 strike call was offered at $3.25 as I am writing this. The most you can lose buying a call option is the premium paid, or $3.25, about half of the stock trade. Not bad.

But you can make it look even better if you also sell the July 17 Expiry 85 strike call. This brings in 93 cents in premium, reducing your net outlay (risk) to $2.32. It also caps your potential gain at the difference between the strikes, $8.00, less that net outlay, at $5.68. Now your risk drops to 35% of the stock trade with a maximum upside gain of almost 145% at a stock price of $85 at expiry. I put a similar trade on in my accounts a couple of days ago.

You could just stop there but the process and history pointed me to the broader Mag7 names. And those that follow me on X or Stocktwits saw an Alphabet (($GOOGL) trade yesterday and trades in Amazon ($AMZN) and Microsoft ($MSFT) today. All 3 names are exhibiting similar lift into earnings. Tomorrow I will walk through this analysis on Apple ($AAPL) for a similar trade idea.