CXQ – Macroaxis Research Hub – TOS

The Double Whammy Strangle Payoff

We entered a Long position on both the Call and Put for a strangle spread on July 7th.  Here is an example of how well a “strangle” position can pay off – when carrying the debit.  The key is making sure you are out beyond the 30 day cycle to have a sufficient buffer.

Take Away – We’ll close our position – take profits off the table and then reposition for the after hours earnings report – covering with a Short Call and Long Put for a three day hold.

Symbol Strangle 18 AUG 17  (40)
NFLX CALL PUT
7/17/2017 07:05 7-Jul 7-Jul
Position Long Short
strike 160 145
entry 4.55 5.90
bid 9.55 1.98
ask 9.80 2.02
delta 0.5855 (0.17)
volume 268 648
prob otm 46.27% 79.47%
IV 40.74% 43.93%
contract 200 100
cost basis $910.00 $590.00
profit $1,000.00 $392.00

Macroaxis Research Hub

Macroaxis provides buy or sell recommendations on Netflix Inc to complement and cross-verify current analyst consensus on Netflix. Our advice engine determines the firm potential to grow exclusively from the prospective of investors current risk tolerance and investing horizon. To make sure Netflix Inc is not overpriced, please verify all Netflix Inc fundamentals including its Current Ratio, and the relationship between EBITDA and Number of Employees . Given that Netflix Inc has Number of Shares Shorted of 27.48 M, we recommend you check Netflix market performance and probability of bankruptcy to make sure the company can sustain itself in the current economic cycle given your last-minute risk tolerance and investing horizon.

Relative Risk vs. Return Landscape

If you would invest  15,340  in Netflix Inc on June 17, 2017 and sell it today you would earn a total of  772.00  from holding Netflix Inc or generate 5.03% return on investment over 30 days. Netflix Inc is currently generating 0.2612% of daily expected returns and assumes 1.795% risk (volatility on return distribution) over the 30 days horizon. In different words, 17% of equities are less volatile than Netflix Inc and 95% of traded equity instruments are projected to make higher returns than the company over the 30 days investment horizon.

On a scale of 0 to 100 Netflix holds performance score of 10. The company secures Beta (Market Risk) of 2.0468 which conveys that as market goes up, the company is expected to significantly outperform it. However, if the market returns are negative, Netflix will likely underperform.. Although it is vital to follow to Netflix Inc price patterns, it is good to be conservative about what you can actually do with the information about equity historical price patterns. The philosophy towards estimating future performance of any stock is to evaluate the business as a whole together with its past performance including all available fundamental and technical indicators. By analyzing Netflix Inc technical indicators you can presently evaluate if the expected return of 0.2612% will be sustainable into the future. Please exercise Netflix Inc Total Risk AlphaDownside Variance as well as the relationship between Downside Variance and Rate Of Daily Change to make a quick decision on whether Netflix Inc current price movements will revert.

TOS Chart – Calculate Option Pull Back

NFLX – The above chart shows a solid long upward trend, tapping the 78% Fibonacci Retracement.  This is a signal that the equity is overbought and will pull back to the 68% at the very least- if not the 50% Fibonacci price (considered the new Pivot Price).  Considering that NASDAQ will retreat at the same time.

We will calculate our percentage pull back to the option chains premiums to know what our potential profit will be for a 3 day hold targeting the 50%. The Trend line shows a $6 retracement so targeting an OTM on the Put – 50% versus the Call OTM at 30% favors a lean into the Put to go long  and shorting the Call (write).  [The OTM percentage can be thought of as the Standard Deviation – once removed.]  

The other validation is that the Implied Volatility is over 35% – that signals leading edge on the Put side.  On the TOS Chart we combine the Rate of Change with the Volatility Standard Deviation indicators – which shows a shift in our favor.  

The asset Volatility is 1.03% which gives the premiums substantial vigor to move in a “swing trade” strategy.  

Short the Call Strike at 150 – premium decay with 1 Contract (100 shares) at our entry of $14.81 will approximately $8 in three days.  

The Long Put Strike at 160 – entry at $7.36 with 1 Contract ought to increase to approximately $13.  With a $6 range that equals $600 we ought to see a $1200 net profit – without calculating in the option premium Bid/Ask spreads.

Here is our new CXQ NFLX Matrix set up in preparation for the After Market Earnings Report today:

NFLX CALL PUT NFLX
7/17/2017 08:11 7/17 7/17
Position Short Long *last
strike 150 160 160.91
entry 14.66 7.46 open
bid 14.60 7.40 162.91
ask 14.85 7.45 high
delta 0.7306 (0.46) 163.55
volume 816 1297 low
prob otm 31.36% 49.59% 160.25
IV 42.87% 41.07% Vol/Shares
contract 100 100 4727927
cost basis $1,466.14 $746.21 431004410
profit $6.14 ($6.21) ($0.06)

*The column on the far right shows the Asset price range and Price Move which is more valid than the Net Change.  Volume and Shares are divided to find the intraday volatility.

Our DTE calibration shows the time decay factor of deterioration of the premiums and expected loss of our capital outlay.  Notice that at time  of Expiration the Put value is positive where the Call time value is minus.

Call                                      Put

DTE 13.52975 5.95575
EXP (1.1315) 5.9558
DTE Drawdown ($113.15) ($145.55)

Stay Tuned:  We’ll be following with NFLX in three days to determine if our quantitative model has the Proof of Concept nailed down.

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Request CXQ Excel Model: grtsmarket@gmail.com.  

In the Subject: CXQ Request

Macroaxis Research Hub and the TOS (thinkorswim) charts are attributed to the rightful owners.

Attribution-NonCommercial-NoDerivs CC BY-NC-ND
Duplication of the CXQ Model is strictly prohibited without attribution.

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