Risk Vs. Reward On Netflix Into Earnings

Netflix Inc (NFLX) reports earnings after the close of trading today. Analysts expect $0.50 per share on $5.44 billion in revenue. The whisper number for earnings per share is $0.58. Should investors buy or sell Netflix into earnings? To figure this out, a true pro trader or investor must look at the risk vs. reward on Netflix. This is based on the stock chart heading into earnings.

While the stock has rallied higher over the last three months, Netflix has still not tagged an important gap fill on the stock chart at $362.00. Based on the current price of $338, it means there is a risk to being short of $24. What is the risk to being long? The stock has rallied from under $260 to its current $338. That means it is short-term overbought wish downside risk of $271. This means the downside net risk to being long is $67.

Overall Analysis Conclusion:

While the chart analysis suggests shorts have a better risk vs reward of Netflix, there is definitely risk to being short (to the tune of $24 loss). As a pro trader and investor this keeps me away from shorting it into earnings. I want at least a 4 to 1 reward to risk ratio. However, if Netflix rallies to $362 (gap-fill) on earnings, I would consider shorting the stock at that point.

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Disclosure: None.

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