Premium Earnings 10-15-14: Goldman Sachs and Netflix

• Posted by Greg Harmon
• on October 15th, 2014

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I sent this to subscribers at noon today.

Two names today one that reports after the close tonight, Netflix, $NFLX, and one before the open Thursday, Goldman Sachs, $GS.

Netflix, $NFLX

Netflix, $NFLX, had a strong move higher from May to June and then has settled, but with a couple of higher lows and higher highs. A slower rising trend but still trend higher. Into earnings it is testing the recent support while the Relative Strength Index (RSI) is pulling back and testing the bullish zone limit with the MACD falling. There is support lower at 435 and 419 followed by 401.50 and 377. There is resistance higher at 440 and 455 followed by 467 and 473 before 487. The reaction to the last 6 earnings reports has been a move of about 11.02% on average or $48 making for an expected range of 380 to 480. The at-the money October Straddles suggest a smaller $31.50 move by Expiry with Implied Volatility at 108% above the November at 40%. Short interest is high at 10%. Open interest favors the 445 to 470 Strike range if it reacts well and the 425 to 455 Strikes otherwise. There were sellers of October/December 445 Put Calendars yesterday and buyers of the October/December 450 Call Calendar.

Trade Idea 1: Buy the October 430/400 Put Spread for $10.

Trade Idea 2: Buy the October 425/415-405 1×2 Put Spread for free.

Trade Idea 3: Buy the October 425/410/395 Butterfly for $2.75.

Trade Idea 4: Buy the October 460/470 1×2 Call Spread for free.

Trade Idea 5: Buy the October 460/470/480 Call Butterfly for $2.15.

Trade Idea 6: Buy the October 430/November 405 Put Diagonal for free.

Trade Idea 7: Buy the October/November 480 Call Calendar for $4.50.

#1 and #3 are straight directional downside this week. #2 is an alternative with margin for a lot less with risk below 395 and #6 plays for a quick move lower and stall or recovery. #5 and #7 play the upside and an expectation that the 480 level will hold this week. #4 goes for upside as well but takes margin and has risk over 480. in current environment I like #6 and #7 together, or #3 and #5 together (#2 and #4 if you have the margin and can hedge).

Goldman Sachs, $GS

Goldman Sachs, $GS, broke the rising trend line last week and moved lower. Today it gapped below a support/resistance zone and is proving it important as it tries to recover. The Hammer building could be a reversal if confirmed tomorrow. Since September it has also traced a bullish Bat harmonic that completed today. The first target to the upside would be 178.73 and then 182.85. Heading into earnings the Relative Strength Index (RSI) has moved into the bearish zone and is falling with a falling MACD. These suggest the downside is not over yet. There is support lower at 172.25 and 169.25 followed by 168 and a gap to fill to 165.14 before 162. There is resistance higher at 178.75 and 180.50 followed by 183 and 186.65 before the prior top at 189.50. The reaction to the last 6 earnings reports has been a move of about 1.52% on average or $2.66 making for an expected range of 172 to 177.60. The at-the money October Straddles suggest a larger $5.25 move by Expiry with Implied Volatility at 43% above the November at 27%. Short interest is low at 2%. Open interest favors the 180 Strike this week. There were buyers of 185 Calls and seller of the 180 Puts yesterday. Today is seeing more Put selling at 180.

Trade Idea 1: Buy the October 175/180 Call Spread for $2.

Trade Idea 2: Buy the October/November 180 Call Calendar for $3.15.

Trade Idea 3: Sell the October/November 170 Put Calendar for a $3 credit.

Trade Idea 4: Buy the October 31 Expiry 175/180 Call Spread ($2.80) and sell the October/October 31 Expiry 165 Put Calendar ($1.30) for $1.50.

#1 and #2 are straight upside recovery plays, with #2 giving it much more time. #3 plays for short term downside and then recovery, and I like ti paired with #2. #4 looks for upside over two weeks but allows for short term downside this week, with risk under 165. I like #2 and #3 together best and then #4.

I will be opening this up to the public at 3pm. Also I have positions in Goldman Sachs (November/January Call Calendars) and will not be playing it for earnings.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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