I recently closed out a Poor Man’s Covered Call (PMCC) on NFLX. This trade is a textbook example of why having—and sticking to—a mechanical exit plan is critical, even when the “headline” numbers look like a slam dunk.

The Setup

On April 14, I opened a diagonal spread (PMCC) on Netflix. I was bullish going into earnings and wanted to leverage a high-delta LEAPS position while offsetting some of the cost by selling near-term premium.

• Long Leg: Bought 2 NFLX Jan 15, 2027, $82.00 Calls @ $30.40.
• Short Leg: Sold 2 NFLX May 01, 2026, $115.00 Calls @ $1.44.
• Net Debit: $2,896 per contract.

The goal was simple: The $82 strike was deep in the money (approx. 0.80+ delta), giving me stock-like movement for a fraction of the capital.

The Event: The “Ghost” Beat

Netflix reported on April 16, and the headline EPS was a monster: $1.23 vs. the $0.78 expected. On the surface, that’s a massive 57% beat. But as traders, we have to look under the hood.

A huge portion of that “outperformance” came from a $2.8 billion merger termination fee Netflix pocketed after the Warner Bros. Discovery deal collapsed. The market saw right through it. While the cash is great for the balance sheet, it’s a one-time item that doesn’t help long-term subscription growth.

Combined with soft Q2 revenue guidance (13% vs. the street’s higher hopes) and the news that co-founder Reed Hastings is officially stepping away from the board in June, the “narrative” shifted instantly. The stock took a 7-10% hit almost immediately.

How I Dealt With the Trade

One of the few “pros” of a PMCC when the stock drops is the short call. Since NFLX plummeted, the $115 short calls I sold crashed in value. I was able to buy them back on April 17 for just $0.10.

• Short Leg Profit: +$265.48 (after fees).

However, the long leg was a different story. Even though I have until 2027, my hard rule for the PMCC is to maintain a delta above 0.70. This ensures the position behaves like a covered call and doesn’t turn into a “hope-based” lottery ticket.

By April 28, the delta slipped below that 0.70 threshold. Despite my personal belief that NFLX will eventually rebound, I had to be disciplined. I closed the LEAPS at $16.80.

• Long Leg Loss: -$2,722.58.

Final Trade Summary

Leg	Action	Entry	Exit	Net P&L
Short 115C	Sell to Open / Buy to Close	$285.73	($20.25)	+$265.48
Long 82C	Buy to Open / Sell to Close	($6,082.25)	$3,359.67	(-$2,722.58)
Total				(-$2,457.10)

Pros, Cons, and Lessons Learned

Pros:

• Disciplined Risk Management: Closing when the delta dropped below 0.70 saved me from potentially larger losses.
• Capital Efficiency: I participated in the move with much less capital than buying 200 shares outright.
• Successful Hedge: The short call worked exactly as intended, providing a small cushion.

Cons:

• The Binary Trap: Trading a delta-heavy strategy right before earnings is high-risk.
• Guidance over Headlines: This was a reminder that the “now” (EPS beat) matters less than the “next” (soft Q2 guidance).

The Takeaway:

I’m still bullish on NFLX long-term, but as a quantitative trader, I don’t trade “feelings.” My delta rule doesn’t care about my arguments for a rebound; it only cares about the math. By closing the trade once my criteria were breached, I freed up capital for the next setup rather than bag-holding a position that no longer met my requirements.

Keep the losses small, stick to the rules, and live to trade another day.