NFLX reports after the close and the options market is implying about a 10% move which is shy to its 8 qtr avg move of about 13%.
-the APR29 weekly 250 straddle with the stock at ~250 is offered at ~24.00, so to break even u need at move to 274 on the upside or 226 on the downside…..
-FULL DISCLOSURE: I dislike the company, its products, their business model, the stock, its valuation and generally the psychology that surrounds stories like this, it is unhealthy…..but generally I hate this story because I know how this will end……I couldn’t buy this stock with my worst enemy’s money. I could care less that it is going to 300, then 350 and then who knows…… read more of this rant here from March 16. 2011: http://staging.staging.riskreversal.com/2011/03/16/well-atleast-nflx-was-up-yesterday/
-Only way I can play this is from the short side…..But you would have to have your head checked to short the stock….so my advice, if you are as stubborn as I am, decide what you are willing to lose and then Buy Put Spreads……Or Put Trees depending on risk tolerance.
-THIS IS NOT A FIST POUNDER BUT I AM TRYING TO BE CONSISTENT, AND NOT LIKELY EVER TO CHANGE MY VIEW ON THE STOCK, UNTIL MAYBE IT IS SOUTH OF $100. SPECULATIVE PLAY-RISK WHAT YOU ARE WILLING TO LOSE.
-ALSO STOCK PROBABLY RALLIES INTO CLOSE AS SHORTS COVER BEFORE THE PRINT, SO YOU MAY WANT TO WAIT TO PUT ON TILL THE LAST 15 MINUTES to adjust strikes….
TRADE: NFLX (stock ref ~251.00) BUY APR29th weekly 235 / 225 Put Spread for ~2.70
-Buy APr29 wkly 235 Put for 5.20 and
-Sell APr29 wkly 225 Put at 2.50
Break-Even on APR29 wkly exp:
Downside: stock btwn 232.3 and 235 lose up to 2.70, stock btwn 232.30 and 225 make up to 6.30, stock below 225 or down 10% make 6.30……
Worst CASE: stock above 235 and you lose full 2.70 in premium.
OR You Have higher Risk Tolerance….
TRADE: NFLX (stock ref ~251) BUY the MAY 240 / 225 / 210 Put Spread Tree
-Buy May 240 put for 10.40
-Sell May 225 Put at 5.40
-Sell May 210 Put at 2.60
Package Costs 2.40 or less than 1% of the underlying.
Break-Evens on May Expiration:
Upside: stock above 240 you lose the 2.40 in premium or less than 1% of the underlying….
Downside: stock btwn 237.60 and 210 can make up to 12.60, stock 197.40 (down21%) you start to lose money ( you are put the stock at 210, but you have already made 12.60 on the May 240/225 Put Spread.