NETFLX has had a huge positive run over the past week (almost 20%) on the back of the Apple TV news. Many analysts believe that the stock has more room to run. However, while I am positive on the outlook for the company I agree with my friends at Seeking Alpha that the company is overvalued.
http://seekingalpha.com/article/223782-netflix-defying-the-laws-of-gravity?source=yahoo
They believe that given a meaningful pullback (which I believe may have started today) would result in a better entry point from the long-side. We can wait for that to happen, but until it does, there may be an opportunity from the short-side to take advantage of a near-term pullback in the stock. Over the past 5 days, the puts have been absolutely hammered. They provide us with a low-risk opportunity to take advantage of any pullbacks on the stock.
Which puts look attractive? Here's what I think:
I suggest looking at the Oct 130/125 put spread which costs around $1.60 giving us the opportunity for $3.40 in upside. Do I think that we'll be able to max out our opportunity here? Probably not, but I think a 50% and even possibly a 75%-100% profit is very achievable.
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