Big Printin’ – $NFLX

by Dan January 13, 2016 3:42 pm • Commentary

Shares of Netflix (NFLX)  were up on the year before today, massively out-performing its high valuation peers.  Today’s 8% decline is kind of eye-popping, even for a stock that was up 130% last year. At its lows today (down 10%) it had shed close to $5 billion in market capitalization, or near the company’s 2014 total sales.

Options activity in the stock today has been fairly two way, with 116k calls trading to 100k puts as of 3;30pm.  But the largest trade of the day was a buy of 2300 of the Jan15th (Friday expiration) 100 puts for 68 cents when the stock was $107.   These puts if bought to open, break-even on Friday’s close at $99.32, down 7% in two days.  These puts seem dollar cheap, but they are anything but when you consider that if the stock were to just stabilize here, these puts will likely be cut in half tomorrow, and then on Friday morning be worth a nickel.

While the jury is still out on this options trade, the purchase, the timing and the strike give us an opportunity to take a quick look at the technical set up.

On a one year basis the break-out above $100 on better than expected Q2 results, but has found some support on numerous occasions in and around that level.  The stock’s 200 day moving average (yellow) is not just above the psychologically important round number:

[caption id="attachment_60235" align="aligncenter" width="600"]NFLX 1yr chart from Bloomberg NFLX 1yr chart from Bloomberg[/caption]

For those of you who remain true believers in the NFLX story and your broker is either going to pull the stock out of your cold dead hands, or you are gonna ride it to a $100 billion market cap, it’s important to consider that the stock is now approaching the uptrend that has been in place from the start of 2015 when the stock was out of favor, and below $45, with little support till the mid $80s which also happens to be the Aug 24th flash crash low, with the strong potential to a gap fill to $80:

[caption id="attachment_60237" align="aligncenter" width="600"]NFLX 5 year chart from Bloomberg NFLX 5 year chart from Bloomberg[/caption]

To be fair, regular readers know that NFLX is not our cup of tea and we have been cautious on the entire one year rally for fundamental reasons, silly stupid us.  But for those who are interest in original content and over the top delivery, I remind you that we have been very positive on Time Warner for the last few months and would much rather buy that for $56 billion in market cap, than NFLX at $46 billion for so many reasons.