4 Netflix Earnings Trades (that you won’t learn anywhere else)

In this video, Steve discusses how to trade Netflix (or any other momentum stock) after earnings and offers 4 possible trades that could have been made.

View Video Transcript
today we’re going to talk about how to
trade netflix
after an earnings report so if that
topic interests you
stick around
[Music]
hi i’m steve spencer i’m a partner at
smb capital we’re a proprietary trading
firm in new york city where we trade
stocks
futures and options and one of the
things we do is specialize in trading
stocks in play
and one of the primary things that will
put a stock into play
is an earnings release and we are right
now
entering into the height of earnings
season and one of the top momentum names
it’s been one of the top momentum is for
many years is netflix
so i wanted to walk you through kind of
my process and the process that
professional traders will take
um to trade following an earnings
release and the cool thing about this
is there are several setups that present
themselves starting for
with right after the initial earnings
release
the next morning in the pre-market after
the market opens
and then intraday on that day one
play so netflix reported earnings after
the close
yesterday and the market’s initial
reaction
was negative so what i’m doing um
as a trader is i’m sitting at my desk
i’m listening to the squawk news service
report the numbers and
every type technology stock will have
several types of key numbers
that traders and investors are looking
for to kind of cue
off their trades based on those numbers
in the case of netflix
um the big number is always going to be
the subscriber additions
and any guidance they give going forward
on subscriber editions
and so they came out with a big number
but then they guided very conservatively
and so when that happens generally the
reaction is going to be down
but that’s not the only thing the market
is looking for the market’s also looking
at
you know what was the cash flow what’s
the cash flow going to be going forward
when all those numbers started to come
out it was pretty clear that this was
not a disastrous quarter
and if the if an initial reaction is
very negative
um what i’m going to do is look at the
higher time frame the multi-week
30-minute chart
and the daily chart to find spots where
people are looking to buy netflix on the
cheap because this is a very
strong market leader momentum meme and
so the first trade that i took
um was buying a dip into
450 so i started to nibble into 460
and if you can look at this longer term
chart here you can kind of see very
clearly why i was buying into that area
based on the higher time frame chart
and then what you’re doing when you’re
buying there is you want to see the
support at 4
450 you want to see it hold and then
you’re looking for
generally a 10 to 20 pop off of that
level
now it turns out if the news is not
actually that good or i should say
if it’s perceived as bad and people are
expecting the next day to be very weak
people will use that opportunity active
traders will be using that opportunity
after hours to get short
um and but in this case my thought
process is more like these numbers
aren’t that bad they’re a little
conservative on the guidance
after the initial pop let me see if it
can make a higher low and perhaps trend
up a little bit in the after hours
eventually what happened was it got into
the 470s i got flat
i actually left um and i moved on to the
next setup which is
what do i want to see in the pre-market
the next day so after it’s bounced from
450
to the 470s i’ve gotten flat i’ll come
in the next morning and i’ll say did it
roll over and test the low again
did it hold higher did it bounce more in
the after hours and when i came in the
next morning
basically what happened is it got into
the 480s
it actually didn’t get the 490 the low
490s which there’s
potentially some resistance on the
higher time frame i actually tweeted out
after the initial when i caught it above
450 and it started to hold higher
i tweeted out my thought process that i
thought i could move back up into the
490s for anybody who was watching it and
looking for some upside
but getting back to the pre-market so in
the pre-market
um it’s now trading above
um the after hours bounce high and so my
mindset is okay
it’s now above the bounce high from the
after hours perhaps people will do some
bottom fishing because the stock is
still down over 30 dollars
on the gap coming in this morning and
they might push it up to 500
to 500 510 area in between 500 and 510
and so what we talked about in the
morning meeting was okay it’s already
had a pretty good balance
we’re not really expecting this to go
positive because there was some negative
news there in terms of the forward
guidance on subscribers
so maybe on the open we can short it
above 500 and look for a fade
back into the 480s and so this trade
what we call this trade
is basically an open momentum to the
downside trade
and this is we’ll actually see this in
stocks like facebook
netflix tesla google um
whether they gap up or down quite often
on the open you’ll get a pretty good
feed either way whether it’s gapping
down or
gapping up from whatever the pre-market
high was and so that’s like just a quick
momentum trade and
remember that first 15 to 20 minutes the
term that i came up with many years ago
is i call that price discovery time
period that first 15 to 20 minutes
you get a lot of up a lot of down
eventually things will settle in by 10
o’clock usually
and then you’ll get a better idea of you
know is this stock going to have a
chance to trend up today or trend down
today moose stocks don’t trend for the
day they
they kind of develop levels in the
pre-market in the first 20 minutes and
they move up and down off of those
levels
but occasionally they’ll move outside of
those levels that have been established
in trend
so on the open took the trade above 1500
on the short side
it moved lower and then eventually i was
looking for it to come into 1480 to see
if it would find a bid there
um and perhaps work its way back up to
1500 again but something interesting
happened as the market was selling off
buyers were stepping in around 1485 1486
and i noted as the market made a new low
that there were buyers at 1486. i shared
this with traders on the desk traders in
real time
one of our tools where you can hear me
kind of talk um
during the day as i’m trading saying wow
buyers are stepping in here at 1486.
this wouldn’t surprise me
if it worked its way back up to 1500. as
i’m filming this video um it has already
bounced into the
490s i’m actually getting ready to leave
for the day
um but based on the accumulation that i
saw there in the mid 480s it wouldn’t
surprise me
if it then starts to hold above 490 it
eventually it could finish up
at 15 excuse me 500 i’m thinking about i
got tesla in the brain right now
thinking it could close at um 500 or
perhaps even above
but the one thing that’s striking to me
about it is it’s been a very tight range
for netflix overall so we covered the
reaction bounce play in the after hours
we covered
the short on the open um because
you know quick quick down move that we
tend to see momentum stocks right in the
open before they find a bid
the third trade was we talked about the
buyers at
86 the fourth trade that one that i
actually took which i kind of skipped
over was
after the initial failure at 500 um when
it goes down into the
into the 480s now that my thesis is
confirmed that there’s going to be
sellers about 500 i’ll short into a
retracement
and so our first resistance area on the
morning game plan was 492 to 496. so i
used that 496 to reshort it
again i was short from above 500 on the
open look for the down move
once i see that weakness when it
retraces back up to our first resistance
area
i shorted into 496 and then
use the morning support kind of 480 to
490 to cover
and now i’m looking to see for clues
which way it’s going to go and as i said
based on what i saw over the last hour
the accumulation in the mid 480s
and now holding above 490 i believe it
perhaps can work its way back
up to 500 and maybe close above there
and so those are the four trades
um and you kind of see how they develop
that based on the
on the on the chart as well if you’re
interested in kind of our process of
stock selection
how we select stocks how we
develop levels to trade off of them uh
check out tradingworkshop.com
in addition to my stock selection
process which i spent 30 minutes on
we go over three trades myself and mike
bella fury the other partner
co-founder of smb capital um
three low risk high reward setups that
traders use on the desk
click on the link above or check out
tradingworkshop.com