Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Warning Before Netflix, Inc. (NFLX)’s Fourth Quarter Earnings Report

What happened after Netflix, Inc. (NASDAQ:NFLX) released its Earnings Report for the third quarter was nothing less than a catastrophe for the online steaming platform’s stock price. Investors would be wise to learn from  those mistakes and hedge their bets this time around, no matter how bullish they are in the long run.

Netflix, is NFLX a good stock to buy, 2015 lineup,

On Bloomberg, MKM Holdings Derivatives Strategist, Jim Strugger explained the long term outlook that he has on Netflix, Inc. (NASDAQ:NFLX), and also the short term measures that he is taking to protect his investment when the company reports its earnings for the fourth quarter next week.

“Yeah, long  term we are very bullish. We have got almost a high end of the street price target of $530, so very constructive in the longer term, but this quarter is going to be about subscriber growth. They missed in the third quarter, that is going to be the focus […],” explained Strugger.

As far as Strugger’s hedging strategy is concerned  it revolves around a put call spread, partly financed by selling a call option on the Netflix, Inc. (NASDAQ:NFLX) stock with a strike of $400. Both the Put Call spread and the Call option expire in February.

“[…] In February we want to sell an upside $400 strike call. We want to turn around and buy a put spread specifically at $320, $270 Put Spread. You put that on for just about 3.5% of the underlying, sounds like a lot, but what we are trying to do here is really manage significant downside in this stock that declined almost 20% after reporting third quarter earnings […],” said Strugger.

As a result of this trade, the loss is unlimited and depends on how much the price of the Netflix, Inc. (NASDAQ:NFLX) stock rises. However, in the case of a falling price, the investor will reap significant rewards from this options strategy.

Warren Buffett and BillionairesFree Report: Warren Buffett and 12 Billionaires Are Crazy About These 7 Stocks

Let Warren Buffett, David Einhorn, George Soros, and David Tepper WORK FOR YOU. If you want to beat the low cost index funds by an average of 6 percentage points per year look no further than Warren Buffett’s stock picks. That’s the margin Buffett’s stock picks outperformed the market since 2008. In this free report, Insider Monkey’s market beating research team identified 7 stocks Warren Buffett and 12 other billionaires are crazy about. CLICK HERE NOW for all the details.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.