What to trade next week?

Posted on May 29, 2011 by admin
  • NFLX is overbought.  NFLX broke out of the 260 resistance.  The one-year chart below shows whenever RSI goes above 70, it has been always followed by a correction.  RSI is now at 71.  I don’t expect NFLX price to continue upward climbing without a consolidation.  There are 2 possible scenarios here.
    • NFLX price will stay above 260 while digesting the recent gains.
    • NFLX will retreat to below 260 and remain stuck in the 240-260 range.

  • So how to trade NFLX?  A bottom fishing strategy is a bull put spread of 240-245 ($.125 gain).  This is a quite safe strategy, albeit a lower gain.  SMA 20 is 242.63.  This is my preferred trade.

  • Another approach is to set up a bear weekly spread (expecting NFLX won’t continue much higher) of 270-275 put yields $1.1 profit.  Or a bear weekly call spread of 270-275, $1.12 gain.  The call volume is much bigger, as such the order should be easier to get filled.  The higher call volume indicates that many traders continue to expect NFLX to move higher.  The danger of this approach is overbought condition can get more overbought.

About admin

Richard Cheng, M.D., Ph.D., is an avid Wall Street investor with 20+ years of investing experience. He is specially adept at observing the world to find the patterns and then design strategies to win his battle. Most, if not all, happenings in the world, follow certain patterns. These patterns may be complex, multi-factorial, not so intuitive at the first glance, or even may appear chaotic. However, even chaos has its own patterns. If you pay attention and be patient, you'll find them and then you will gain an upper hand in your battle. Using this blog space, he documents his trades and his thoughts as they happen. He uses this blog as a a notebook to help him better refine his strategies. Hopefully this will help you as well. Good luck in your trading.
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