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Trade of the Week: Crushing Earnings with Netflix

  • Writer: Miqdad Mawji
    Miqdad Mawji
  • Jan 23
  • 3 min read

Week of January 21st, 2025

At Urban Bear Capital, we thrive on moments where volatility meets opportunity. The Netflix (NFLX) earnings release on January 21, 2025, presented just such an event. By leveraging our proprietary trading framework, robust risk management, and a clear understanding of historical patterns, we capitalized on post-earnings price movement to achieve a 9.5% gain in just a few hours. Here’s a breakdown of how we seized this opportunity with precision and discipline.

Market Context & Thought Process

Netflix entered its Q4 earnings report under intense scrutiny, with analysts forecasting revenue growth of 9% year-over-year and subscriber additions of 8.1 million. At Urban Bear, we are indifferent to direction. Netflix smashing or getting smashed by earnings didn't matter, as long as the data gives us confidence that the stock will move a lot. The following factors are considered when conducting our research:


  • Pre-Earnings Sentiment: NFLX had rallied 83% in 2024 after the new ad-tier silenced critics.

  • Historical Earnings Move: Netflix has historically posted double-digit price swings following Q4 earnings, with an average move of 11.2% over the past 10 years. It's also always the first major tech to report, increasing chances of big swings.

  • Implied Volatility: NFLX options showed elevated implied volatility of over 100%, pricing in a significant post-earnings move.

  • Proprietary Models: Our unique data-driven time series models analyze the share price, hedging costs, hold time, volatility and theta decay levels to give us the perfect calculation as to how to approach the trade.

  • Risk Management: The strategic approach allowed us to take the trade with confidence as the max loss was less than 4% of the cost of the trade, with less than a 90% chance of the trade failing.


Anyone can engage in trading earnings using calls, puts, strangles, shares, inverse ETFs, or various other strategies. However, incorrect execution can lead to significant losses. By incorporating our method with precise mathematical calculations, we can guarantee correct execution and effective risk management.


Urban Bear’s Strategy

  1. Position Entry: We purchased Netflix shares at $865 per share just before the earnings announcement, anticipating an upward move based on the strength of historical trends and strong guidance signals from management.

  2. Hedging with Puts: To mitigate downside risk, we bought out-of-the-money puts, creating a cost-effective hedge against potential earnings misses.

  3. Timed Exit: Following the earnings release, NFLX surged to $950 in after-hours trading, and we exited the position to lock in gains, which far exceeded the cost to hedge.



Netflix’s Q4'24 Results:

  • Revenue: $10.25 billion (vs. $10.11 billion expected).

  • EPS: $4.27 (vs. $4.20 expected).

  • Subscriber Growth: 18.9 million (vs. 5 million in Q3'24). Historical Beat

  • Buybacks or Split: Due to the recent performance and share price, buybacks or a stock split were expected to be announced. They did $15 billion in share buybacks


Performance Overview

  • Entry Price: $865

  • Exit Price: $950 (After Hours)

  • Net Gain: 9.5% within hours, after accounting for hedging costs.




Netflix movement pre and post earning with Urban Bear's entry and exit price
Netflix movement yesterday pre and post earnings.

Looking Ahead

Earnings season, epsecially during such volatilie times, continues to present high-potential trading opportunities. Our success with Netflix demonstrates the power of combining quantitative analysis, robust risk management, and agile execution. At Urban Bear Capital, we turn complex data into actionable strategies—helping our clients and partners stay ahead of the curve.


Reach out to us today to learn how we can help you!


References

  1. Historical Price Data - https://marketchameleon.com/Overview/NFLX/Earnings/Stock-Price-Moves-Around-Earnings/

  2. Netflix Earnings Reports (2015-2025): SEC Filings and Netflix Investor Relations - https://ir.netflix.net/financials/sec-filings/default.aspx

  3. Implied Volatility Trends: CBOE Volatility Index and Options Metrics - https://www.cboe.com/insights/categories/volatility_insights/#:~:text=Equity%20volatility%20has%20fallen%20significantly,2021%20(post%2Dcovid).

  4. Urban Bear Capital Models: Proprietary Time Series Analytics (2025).

  5. Projections and Results- https://finance.yahoo.com/news/netflix-stock-skyrockets-q4-blowout-150511323.html


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