Matthew Whiz Bu...'s  Instablog

Matthew Whiz Buckley
Send Message
Matthew Buckley is the founder and CEO of Top Gun Options LLC and a Managing Partner at Wealth Creation Investing LLC. Matt was formerly the Managing Director of Strategy for PEAK6 Investments, L.P., one of the largest volatility arbitrage options trading firms in the country. He was the founder... More
My company:
Top Gun Options
My blog:
Top Gun Options Intel Brief
  • NFLX Earnings Strangle 4 comments
    Apr 6, 2012 6:15 PM | about stocks: NFLX

    Strategic Mindset: Market looks like it is getting ready for a correction. IV and price movement could increase. At Top Gun Options we've found a nice earnings target that fits our strategic mindset.

    Target: NFLX Trading @ $109.97

    Commit Criteria: (NASDAQ:NFLX) Implied Volatility should be rising as NFLX approaches its earnings announcement on April 23rd. We will attempt to ride this increase using a straddle on the May expiration options. NFLX IV is low, giving us nice support for this trade and reducing overall risks. The market dropped yesterday, possibly giving sign of some more movement in the near future.

    Tactic: OPENING 3 NFLX MAY 105/120 Strangle @ $13.48 Debit

    Tactical employment:

    · Buying to Open 3 NFLX May 105 Puts

    · Buying to Open 3 NFLX May 120 Calls

    · As a Strangle

    · For a net debit of $13.38 (3 @ $1338 for a total of $4,044.00)

    · Maximum Gain: Unlimited

    · Maximum Loss: $4,044.00 max

    Mid-Course Guidance: We will be watching for a IV changes and major price movements in NFLX as we get closer to the earnings announcement on 4/23.

    Profitability Target: We would like this trade to go up 30% to a position price of $17.52.

    Exit tactics:

    Stop Loss of 25% - a position price of $10.11

    Profit Target of 30% - a position Price of $17.52

    Time Exit - Do not hold this position over the earnings announcement. In all cases exit before the end of trading on 4/23

    Stocks: NFLX
Back To Matthew Whiz Buckley's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (4)
Track new comments
  • bidforvol
    , contributor
    Comments (2) | Send Message
     
    In your risk analysis, you defined your vega risk. Is that based on historical patterns of the vol of IV in NFLX? Range of historical IV?
    8 Apr 2012, 03:34 PM Reply Like
  • Matthew Whiz Buckley
    , contributor
    Comments (36) | Send Message
     
    Author’s reply » Normally I look at Vega risk as how far can the IV go against me if the assumptions for the trade fail.

     

    If the trade is long volatility then I take a look at how low the IV has gotten on the particular stock and use that as a hypothetical floor. You could call it support if you wanted. This is specifically support for the Implied Volatility and has nothing to do with the price of the stock. To get a rough idea of the Vega risk I look at the current IV of the option and see how far it could drop before hitting this support. This difference is multiplied times the Vega value for the complete options position and it tells me how much I can lose if the IV goes against me.

     

    These are all rough estimates and I use them to get a sense of the trade. It is a basic worst case scenario analysis I do.
    9 Apr 2012, 12:55 PM Reply Like
  • bidforvol
    , contributor
    Comments (2) | Send Message
     
    How'd you do? Looks like it could've been a nice trade if you closed out way before earnings, taking advantage of intraday trading. I was watching this one closely and found it interesting that although IV predictably rose steadily from early April right into earnings, I don't think any straddles or strangles really appreciated much. Only fleetingly in one day and way before earnings. Wanted to know your thoughts on that.
    24 Apr 2012, 10:59 PM Reply Like
  • Matthew Whiz Buckley
    , contributor
    Comments (36) | Send Message
     
    Author’s reply » We actually held this position through earnings with the reports of GOOG wanting to enter the NFLX space. We knew in addition to earnings that this news was going to depress the stock even more.

     

    We got out of the position at $18.03 yesterday after the open for a healthy profit.

     

    W
    25 Apr 2012, 08:27 AM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.