3rd Update NFLX: Closed Jan/Mar 115 Call Calendar For More Than A Double

by Dan January 26, 2012 9:41 am • Commentary

3rd Trade Update Jan 26th, 2012 at 10.26am: With NFLX trading $116.50 I closed the second half of my Calendar at 8.20, so an average price of 7.83 , or a $4.68 gain.  I am going to take the money and run!

2nd Trade Update at 9:31am: with NFLX up 20% on the opening my Calendar can be sold for about 7.30, more than a double, i Think it is prudent to sell half and play with the houses money!

Sold half at $7.46 at 9:35am for a $4.31  gain, lets keep a close eye on how this trades into tomorrow’s close…..

Right now the premium left in the Jan 115’s is around 1.80, that premium will be gone tomorrow afternoon. However… there is risk that if the stock settles and that premium decays…the March we are long could come in volatility wise. So essentially it’s a theta vs vega debate.  A vol collapse in March may be a bigger risk to the position than giving up the decay that will come in the Jan options in the next day and a half.




Trade Update Jan 26th, 2012:   With NFLX gapping up close to 19% on a beat and raise qtr, the Calendar call spread that I bought yesterday should perform fairly well with the stock through my strikes……At this point I am going to watch this one very closely as my short weekly calls will start to decay very quickly with 2 days to expiration.



Original Post Jan 25th, 2012:   Q4 Report, Expectations and the Implied Move.

NFLX reports Q4 earnings tonight.

-The options market is implying about a 14% move vs the 4 qtr average of about 16%.  Remember that the stock was down about 35% last qtr so the previous 4 qtr avg excluding last Q was about 8%.

-The stock is already up about 36% ytd after falling over 70% last year.  

-Valuation is still off the charts as the company is basically expected to break-even this year as they build out their International offerings, spend lots of cash to acquire content and transition from higher margin DVD subs to streaming model.

Some of you have asked about the Implied move and we are working to create a tool where you guys can figure on your own, it takes a little quantitative and qualitative know how, so in the meantime while we figure the best way to present it bear with us.

In the instance of NFLX, with the stock about $95 and weekly options on the week of the event we can figure this move by taking the at the money straddle, in this case the Jan weekly 95 straddle, which is offered at about 13.75.  In this case you can divide the premium by the stock price and get the approximate move…..basically to break-even by Friday you need the stock 108.75 or higher or 81.25 or lower.


Bloomberg had a nice little Preview here:

— Netflix may give update on sale

window for films from studios, subscriber churn when it reports
4Q postmkt.
• 4Q GAAP EPS est. 54c (range 40c-70c); forecast 36c-70c on Oct 24
• 4Q rev. est. $856.96m (range $817m-$895m); forecast $841m-$875m
• 4Q gross margin est. 30.4% (range 25%-34.2%)
• 1Q GAAP EPS est. loss of 29c on rev. $845.6m
• 2012 GAAP EPS est. loss of 2c on rev. $3.59b

• Company Subcriber forecasts for 4Q vs average of Wedbush,
Pacific Crest estimates:
**Domestic streaming 20m-21.5m vs est. 21m
**Domestic DVD 10.3m-11.3m vs est. 10.78m
**International 1.6m-2m vs est. 1.8m

• Listen for update on sale window from studios; Dish, Redbox
fighting 56-day delay {NSN LXEANY6VDKII }
• Look for comments related to churn
• Competitive pressures: AMZN considers blostering its video-
streaming, says NYPost {NSN LYC9BI6S9728}


MY VIEW:  I think the stock likely comes off a little as investors digest some new guidance for 2012.  I think there is still a fairly strong bid for the stock at current levels, and while I am not looking to play the quarter I want to fade an exaggerated out-sized move to the upside.  Also like selling the 2 day option to buy the longer dated as any potential take-over situation may take a little time.

NEW TRADE: Bought  NFLX Jan / Mar 115 Call Spread for 3.15

-Sold Jan 115 Call at 1.14

-Bought Mar 115 call for 4.29

Break-Even On Jan27th weekly Expiration (Friday):

If the stock is 115 or lower the Jan wkly 115 call expires worthless and you essentially own the Mar 115 call for 3.15