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Netflix (NFLX - option chain) shares are rising today after the company launched a free iPhone and iPod application this morning which allows users to stream movies and TV shows on Apple (AAPL) handheld devices. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on NFLX.NFLX opened this morning at $125.89. So far today the stock has hit a low of $124.38 and a high of $127.00. As of 12:25, NFLX is trading at $126.53 up $2.28 (1.8%). The chart for NFLX looks bullish.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $90 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in seven weeks as long as NFLX is above $90 at October expiration. Netflix would have to fall by more than 28% before we would start to lose money. Learn more about this type of trade here.
NFLX has not been below $90 since April and has shown support around $119.50 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in NFLX nor AAPL.
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