Netflix stock continues to be a strong performer in the stock market after gapping up powerfully on earnings in January. Expectations are high for another strong quarter when Netflix (NFLX) reports Q1 results Thursday after the close.
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After a busy week of earnings in the financial sector, more financials are on the earnings radar including Dow Jones stocks Goldman Sachs (GS) and American Express (AXP).
Early Monday, Goldman shares were indicated higher after the company reported stronger than expected earnings and revenue, helped by increased trading and investment banking revenue.
American Express is testing its 10-week moving average after an earnings breakout during the week ended Jan. 26. AmEx reports April 19 before the open. Goldman Sachs is also testing its 10-week line after a recent breakout. Results are due early Monday.
Netflix Stock Near Highs
Netflix gapped up and rose nearly 11% on Jan. 24 after the streaming giant reported its second straight quarter of accelerating revenue growth. Investors also liked news that Netflix added 13.12 million subscribers worldwide in Q4, well above the consensus estimate at the time of 8.69 million. It ended the year with 260.28 million global paid subscribers.
Subscriber growth has been fueled, in part, by the company’s crackdown on shared passwords that started last year.
In early January, advertising president Amy Reinhard told an audience at CES that the company had more than 23 million global subscribers to its new ad-supported subscription tier, up more than 50% from 15 million Netflix reported in November.
Netflix also announced a deal with TKO Group Holdings (TKO) to carry the WWE’s flagship professional wrestling program “Raw” starting in January 2025. The 10-year deal is worth more than $5 billion.
For Q1, analysts polled by Zacks Investment Research expect adjusted profit to rise 56% year over year to $4.49 a share. Revenue growth is expected to accelerate again, up 13% to $9.25 billion. Top-line growth should accelerate slightly in Q2 and Q3.
Watching ASML And TSMC
IBD’s chip-equipment industry group on Thursday ranked 11th out of 197 groups ranked by IBD based on six-month price performance. The group is filled with strong performers, including Netherlands-based ASML (ASML), which reports Wednesday before the open.
ASML makes advanced lithography equipment used to etch tiny circuits onto semiconductors. Earnings and revenue growth has slowed in recent quarters, and annual earnings growth is expected to fall 8% this year. But growth is expected to ramp back up in 2025, soaring 54% according to IBD’s MarketSurge.
Like Netflix, ASML also gapped up on Jan. 24 after the company reported a 17% rise in quarterly profit. Revenue increased 16% to nearly $8 billion. But earnings and revenue are expected to decline in Q1 and Q2 before growth picks back up in Q3 and Q4.
“The semiconductor industry continues to work through the bottom of the cycle,” Chief Executive Peter Wennink said in a written statement. “Although our customers are still not certain about the shape of the semiconductor market recovery this year, there are some positive signs. In spite of these signs, we maintain our conservative view for the total year and expect 2024 revenue to be similar to 2023. We also expect 2024 to be an important year to prepare for significant growth that we expect for 2025.”
Meanwhile, results from Taiwan Semiconductor Manufacturing (TSM) will be out Thursday before the open.
Taiwan Semi on Wednesday said that revenue in March jumped 34% year over year. The company also preannounced Q1 revenue of $18.86 billion vs. estimates for $18.38 billion. The strong beat was helped by booming demand for artificial intelligence chips.
TSM is the world’s largest chip foundry. According to research firm Statista, the company’s market share of the global chip foundry market in Q4 was 61.2%.
Apple (AAPL) accounted for about 25% of TSMC’s revenue last year. Other top customers include Nvidia (NVDA), Advanced Micro Devices (AMD), Qualcomm (QCOM) and Broadcom (AVGO).
Options Trading Strategy
A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the option trading strategy works, and what a call-option trade recently looked like for Netflix stock.
First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others already might have broken out and are getting support at their 10-week lines for the first time. And a few might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.
A call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.
Once you’ve identified a bullish setup in the earnings calendar, check strike prices with your online trading platform, or at cboe.com. Make sure the option is liquid, with a relatively tight spread between the bid and ask.
Look for a strike price just above the underlying stock price — that’s out of the money — and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.
Choose an expiration date that fits your risk objective. But keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.
Netflix Stock Option Trade
When Netflix stock traded around 618.25, a slightly out-of-the-money weekly call option with a 620 strike price and an April 19 expiration came with a premium of around $28 per contract. That was 4.5% of the underlying stock price at the time.
One contract gave the holder the right to buy 100 shares of Netflix at 620 per share. The most that could be lost was $2,800 — the amount paid for the 100-share contract. To break even, Netflix would need to rise to 648, factoring in the premium paid.
The expected move in the options market, based on the at-the-money strike price of 615, is about 55 points up or down. That’s found by adding the at-the-money call premium and put premium for the April 19 contract.
Keep in mind that this is not a trade for a small portfolio because buying 100 shares of Netflix in the above trade would cost $62,000.
Follow Ken Shreve on X/Twitter @IBD_KShreve for more stock market analysis and insight.
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