How to Make Money on Netflix with Covered Calls
In the ever-evolving world of technology and entertainment, platforms like Netflix have become integral to our daily lives. From binge-watching shows on-demand to tracking Netflix stock performance, the landscape has dramatically changed. But did you know you can also make money with Netflix stock in just three days using a covered call strategy? Let’s break it down and explore how to potentially generate quick returns through this investment method.
Understanding the Changing TV Landscape
TV has come a long way from the days of limited channels and scheduled programming. In the past, people would gather at a set time to watch their favorite shows like *Seinfeld* or *Friends*. However, with the rise of streaming services, viewers now watch what they want, when they want. Netflix has played a significant role in this shift, and with its impressive growth trajectory, it's become a prime target for investors.
Looking at Netflix’s stock chart, you can see the company’s impressive 5x return since 2022. This growth has been driven by its dominance in the entertainment industry. However, like any stock, Netflix has experienced volatility, presenting both opportunities and challenges for investors.
The Psychology of a Stock Chart
When examining a stock chart, it’s essential to understand the psychology behind the price movements. In Netflix's case, the stock reached its all-time high in late 2021, where many investors who bought early were ecstatic about their gains. But soon after, a downturn began as Netflix's price dropped below key moving averages, triggering a sell-off.
This is where the weak hands—those who panic sell—often exit the market, while strong hands take over, looking for buying opportunities. Over time, Netflix's stock formed several "bases," where the price consolidated before moving higher, providing a solid foundation for further gains.
Covered Calls: A Conservative Yet Profitable Strategy
One of the strategies used by savvy investors to profit from stock price fluctuations is the covered call. Unlike simply buying a stock and hoping for it to rise, a covered call involves selling call options on a stock you own, allowing you to generate income regardless of short-term price movements.
In Netflix’s case, the speaker from the video takes a more conservative approach to covered calls. Instead of aiming for the highest return possible, they focus on maximizing the probability of earning a profit. For example, they look at a covered call strategy expiring in just three days, aiming for a 6% return with a 72% chance of success. This approach allows them to hedge their bets, ensuring they still profit even if the stock price doesn’t rise significantly.
Why a Short-Term Covered Call Strategy Works
Here’s why this strategy can be effective for Netflix:
- Short-Term Play: In just three days, the investor can make a quick return of 6% with a high probability of success.
- Risk Management: By selling call options at a strike price just below the current stock price, they protect themselves from any sudden downturns.
- Potential for Rolling: If the trade is successful, they can roll the position to the following week, continuously generating income while holding the stock
For example, if Netflix's stock is trading at $706, they might sell a call option at $695, giving them downside protection and a guaranteed income. If the stock rises, they still profit, but even if it stays the same or drops slightly, they can still make money.
Life-Improving Tips
- Set Clear Goals: Understand whether you're looking for a quick profit or long-term growth. A covered call strategy works well for those who want steady income while holding a stock.
- Choose Your Strike Price Wisely: Don’t aim for the highest possible return if it comes with lower probability. A more conservative strike price gives you a better chance of profiting consistently.
- Consider Rolling Options: If your trade is successful, you can extend your strategy by rolling to the next expiration date. This allows you to lock in continuous profits.
- Monitor Earnings Announcements: Major announcements, like quarterly earnings reports, can cause stock price swings. Be aware of these events and adjust your strategy accordingly.
FAQs
- What is a covered call?
A covered call is an options strategy where you sell call options on a stock you already own, allowing you to collect a premium while limiting potential upside.
- Why choose a short-term covered call?
Short-term covered calls offer the opportunity for quick profits with defined risk. By choosing a shorter time frame, you can capitalize on short-term price movements without committing to long-term speculation.
- What are the risks?
If the stock price rises significantly, you may miss out on some of the upside, as you’ve already agreed to sell the stock at a predetermined price. However, the premium collected provides some downside protection.
- Is this strategy suitable for beginners?
While it’s not overly complicated, understanding how options work is essential before trying this strategy. Beginners should educate themselves on the basics of options trading.
Call to Action
Are you ready to start making money from stocks like Netflix? Consider adding covered calls to your investment toolbox. This strategy can help you generate consistent income while minimizing risk, even in a volatile market. Stay informed, be strategic, and start profiting today!
Conclusion
Covered calls on Netflix provide a way to generate quick returns in a short time frame with relatively low risk. By understanding the stock’s chart patterns and applying a conservative covered call strategy, investors can make money while mitigating the potential downsides. Whether you’re bullish or bearish on Netflix, covered calls offer a flexible approach to profiting in any market condition.
