Considering Our Options – $TSLA $NFLX : High Fliers Tired?

by CC October 9, 2013 10:23 am • Commentary

We have two out of the money, bearish flies in two notorious high fliers. These weren’t looking good recently, and expire in October. With the carnage hitting the high fliers the past few days these positions are back from the dead and have a real chance at being winners. To recap, here are the two trades. First in TSLA from Aug 28th:

TRADE: TSLA ($167) Bought OCT 150/130/110 Put Fly for 3.00
  • Bought 1 Oct 150 Put for 8.80
  • Sold 2 Oct 130 Puts at 3.50 each or 7.00
  • Bought 1 Oct 110 Puts for 1.20

Break-Even on Oct Expiration:

Profits: btwn 147 and 113 make up to 17, max gain of 17 at 130.

Losses: up to 3.00 btwn 147 and 150, and btwn 113 and 110, with max loss of 3.00 below 110 and above 150.

 

And in NFLX from Sept 12th:

TRADE: NFLX ($302.75) Bought Oct18th 280/255/230 Put Fly for $3.00
  • Bought 1 Oct18th 280 Put for 6.85
  • Sold 2 Oct18th 255 Puts at 2.30 each or 4.60 total
  • Bought 1 Oct18th 230 Put for 0.75

Break-Even on Oct18th Expiration:

Profits: btwn 277 and 233 make up to 22, max gain of 22 at 255.

Losses: up to 3.00 btwn 277 and 280, and btwn 233 and 230, with max loss of 3.00 below 230 and above 280.

 

Both have sold off hard in the past few days and both are at or near their 50 day moving averages. Here’s TSLA:

Screen Shot 2013-10-09 at 8.03.28 AM
livevol pro

 

And here’s NFLX:

Screen Shot 2013-10-09 at 8.01.51 AM
livevol pro

NFLX is about even from what we paid here, TSLA is still a loser. Since both structures are still out-of-the-money, if both stocks were to hold their 50 day moving average both would be losers or total losses quick because there’s only 6 days left until they expire. If, however, this was the crack in these names that everyone has been waiting for, the amount of room below these moving averages is massive. Meaning, both trades have the potential to be big winners if the selloff continues.

TSLA is about 10 deltas here, but that would change quickly if the stock approached our top strike of 150. NFLX is about 20 deltas here, but changes quickly to the downside.

Because of that, we’re going to let these take a chance at a breakdown, knowing how they could be total losses if not. If an obvious bounce comes, we’ll have to make a decision to take off for a loss. But if they are able to break here, we’ll try to be as patient as possible because of the wide range of potential profitability.

One last note – Enis is of the opinion that the NFLX is more likely to break lower than TSLA, mainly because of the longer-term momentum and volume weakness that NFLX has displayed compared to TSLA.  The reason that is worth mentioning is that NFLX is a already even or up money, while TSLA is still a bit of a lotto ticket. But, counter intuitively, we we may be more patient in NFLX for technical reasons than we are in TSLA. Regardless, both stocks are at pivotal technical points, so the next day or two of price action is critical.