I will start the post with a short introduction to two indicators I frequently use.
The first one is the Relative Strength Index (RSI). RSI is a technical indicator that assesses the price momentum of the stocks. RSI is shown as an oscillator where the value moves between the two extremes (0 and 100). RSI value below 30 indicates that the stock is currently oversold, and potentially due for a bounce/reversal. On the other hand, the RSI reading above 70 indicates that the stock is in an overbought, and correction may occur shortly.
The second one is the Volume Profile Visible Range (VPVR). VPVR visualizes the volume traded in the price level each bar is in. Level with higher traded volume often acts as a support resistance area.
Why am I introducing these indicators? You will figure it out.
Following is a daily chart of Netflix, which I assume all of you are familiar with. The indicator beneath the chart is the RSI indicator (the yellow line is the moving average of the RSI). Applying what you have learned from the short introduction above, you can easily figure out that NFLX is currently oversold, and may bounce soon.
Now let's look at the weekly level. Fibonacci Retracement shows that NFLX has bounced right at the 0.786 golden level, forming a Doji candle, which can represent a potential trend reversal.
Combining these two analyses, we can conclude that NFLX is currently being oversold, and the sellers are losing their momentum to keep the price down and have bounced from the key level. Therefore, buying call seems prime.
Remember how I explained earlier that VPVR indicates potential resistance? Our goal for NFLX is to reach $550 by the end of next week. Since the ATR of NFLX is approximately $13~15, Jan 21 NFLX $550~$560 Call option seems optimal.
Stop loss will be below $530, which is the next support level.