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Bullish Put Spread on Netflix

David Becker
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Want to make a quick 16%, well it can be done by using an options strategy called a bull put spread. This option strategy limits risk while taking a bullish position on a stock, and making a return over a well-defined period.

A put spread is a combination of two put options where you sell an “at or out of the money” strike put option and simultaneously buy a lower strike put for protection. Since the sold put is closer to the stock price, a credit is achieved. By using options, an investor can determine the probability of the trade succeeding, while targeting a specific return. The reason the trade is called a bullish put spread is that you make money if prices on Netflix (NASDAQ:NFLX) moves higher or prices just remain above the sold strike sold.

Here is an example of a bullish put spread

You can sell a put spread on – Netflix Inc. (NFLX)

The 2014 SEP $450.0 puts expire in (18 day) for a price of $3.80

You can then simultaneously purchase a

2014 SEP 445.0 that also expires in (18 days) for a price of $2.96

Your net credit is $0.84

You net return is calculated by dividing the amount your make as a net credit by the most you can loss which is the difference between each strike price $5 for a total return of 17%. Since you make this amount over a 18 day period the annualized return is 344%.

What is cool about this trade is that you can determine the chance that the trade will be in the money by using an option Greek called the delta. The likelihood of the NFLX $450 put being in the money is only 26%. Which means that you have a 74% of being right.

This trade is for information purposes only and is not a call to action to make an options trade. The Author does not have a bullish put spread position on NFLX.

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