During options expiration week in August 2010, I noticed an opportunity to capitalize on short term downside in NFLX. This stock has had an absolutely stellar year so far, but that doesn’t mean you can’t play put options when it’s due for a pullback.
The reasoning for the trade was two fold. First and probably most importantly, the chart was screaming pullback. Secondly, option sellers needed the stock to go down a bit inflict heavy losses on option buyers…otherwise known as inflicting “max pain”. A little much to explain in this short article so I will neglect to go further into that.
The red candlestick that is circled above is my main rationale for this trade. It is the ultra reliable “bearish cloud cover” candlestick. From my trading experience this is one of the best indicators that a stock will go down a few days in a row. How severe that pullback will be is of course an unknown that is unpredictable to a large extent.
So how’d this trade do? Well I alerted this trade toward the end of the day as this “cloud cover” candlestick was formed, which was August 17. Got emails from several subscribers who made big loot on this trade. Here is a screenshot of the gains I had in my etrade account from playing this options pick:
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