Realized 14% Gain After Netflix's Recent Beat - Without Owning Shares

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

Netflix Inc. (NASDAQ:NFLX) recently reported stellar quarterly numbers alongside robust subscriber growth that propelled the shares from ~$100 to $120 by the next day and ultimately to $130 within a few days (Figure 1). Netflix announced that it brought in 370 thousand net subscribers in the U.S. during Q3 while posting only 160 thousand net subscribers during the previous quarter. Furthermore, its international strength was very robust, adding 3.2 million against a 2.0 million consensus. Netflix’s guidance was higher than most estimates as well coming in 520 thousand and 3.75 million subscribers domestically and internationally, respectively. I’ve written a series of articles highlighting ways to leverage options trading to augment a long position or potentially entering into a position in Netflix. I’ve highlighted ways in which one can layer in covered calls to mitigate risk in a long position as well as utilizing secured puts to enter into a position at a lower price or avoid owning the stock altogether while making money. I’ll discuss my covered call/secured put combination strategy to unlock additional value, mitigate risk and generate income. I’ll break this strategy out into segments to exemplify the power of options when dealing with an intrinsically volatile stock with significant upside potential such as Netflix. In brief, I’ve realized a 13.2% gain relative to a -3.1% loss based on the traditional buy and hold strategy based on the closing price on 11Nov16 of ~$115.

Netflix Inc. (NASDAQ:NFLX) Chart
Figure 1 – Netflix’s upward movement after announcing numbers that beat analysts’ expectations

Overview

Netflix is a highly volatile stock with a 52-week range of $80-$133 per share or a $53 per share range. Layered within that range are swings of $10 per share or more (~10%) throughout the course of any given day. These swings to the upside or downside can be difficult to stomach especially after the most recent earnings announcement where the stock cratered by $15 per share in one day (~$100 to $85). There’s no disputing the fact that Netflix has an outrageous valuation and a wide range of intrinsic volatility. Case in point, a $20 move per share was witnessed the day after Netflix beat expectations when they announced Q3 numbers. This intrinsic volatility is more pronounced during any major news story (i.e. expansion into international markets or subscriber price increases) and specifically around earnings announcements. As a result of the nosebleed valuation and volatility, in my opinion, options are a great companion when committing capital to Netflix stock. Continue reading "Realized 14% Gain After Netflix's Recent Beat - Without Owning Shares"

Trading or Investing In Netflix - Options Are Your Friend

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

Whether you’re investing or trading in Netflix Inc. (NASDAQ:NFLX), it’s difficult to avoid a discussion surrounding an options strategy to augment this position. Netflix has an outrageous valuation and a wide range of intrinsic volatility, where swings of $10-$15 in one day are fairly common. This intrinsic volatility is more so pronounced during any major news story (i.e. expansion into international markets or subscriber price increases) and specifically around earnings announcements. As a result of the nosebleed valuation and volatility, in my opinion, options go hand-in-hand when committing capital to Netflix stock. Netflix is high growth stock thus investors are willing to pay a premium for this growth. However, the tradeoff is that traditional metrics such as the price-to-earnings multiple (P/E ratio) and the PEG ratio do not apply. Due to its rapid growth, expanding original programming, wrestling market share away from big cable companies, expansion into international markets and its overall ubiquity, it's easy to see why investors are willing to pay a premium for this media disruptor. Due to these aforementioned factors, an options strategy may be an effective way to leverage and hedge this high growth stock while mitigating risk. Netflix offers high yielding premiums on a bi-weekly or monthly basis whether one owns the stock or attempting a good entry point. This bodes well for those who are willing to leverage options trading to augment returns and mitigate risk throughout the volatile nature of Netflix’s stock. This could come in the form of covered calls and/or secured puts or a combination of call/put strategy. Netflix’s recent second earnings disappointment highlights the value of an options strategy to mitigate losses and smooth out drastic moves in the stock price. Continue reading "Trading or Investing In Netflix - Options Are Your Friend"

Can A Covered Call Strategy On Netflix Bode Well For You Too?

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

Netflix Inc. (NASDAQ:NFLX) is a very controversial high-flying growth stock with a nosebleed valuation as measured by traditional metrics such as the price-to-earnings multiple (P/E ratio) and the PEG ratio. Due to its rapid growth, expanding original programming, wrestling market share away from big cable companies, expansion into international markets and its overall ubiquity, it's easy to see why investors are willing to pay a premium. It's difficult to arrive at an accurate valuation based on traditional metrics for this media disruptor. Due to these factors and the difficulty of placing an accurate valuation on Netflix, options in the form of covered call writing may be an effective way to leverage this high-flier while mitigating downside risk. Netflix offers a confluence of volatility, liquidity and a high level of interest which gives rise to high yielding premiums on a bi-weekly or monthly basis. This confluence bodes well for those who are long Netflix and desire to leverage options trading to augment returns and mitigate risk throughout the volatile nature of Netflix’s stock. Netflix’s recent earnings disappointment underscores the value of covered call writing to mitigate losses and smooth out drastic moves in the underlying security.

Note: This article is backing my long position while opportunistically and quantitatively writing covered calls to mitigate downside risk and generate income. I provide my real life examples embedded into my long position as Netflix is intrinsically volatile.

Leveraging The Volatility In Netflix

Netflix is a highly volatile stock and swings of $10 per share (or ~8%) throughout the course of a day are all too often observed. These swings to the upside or downside can be difficult to stomach. However, one can leverage his position via writing covered call contracts to mitigate these swings while remaining long this volatile stock. Utilizing biweekly or monthly contacts one can expect to obtain a cash premium of roughly 3%-6% with a strike price that's within 3%-5% of the strike price (tables 1 and 2). Continue reading "Can A Covered Call Strategy On Netflix Bode Well For You Too?"

Did Warren Buffett Just Shoot Down Negative Interest Rates?

Hello MarketClub Members everywhere, Adam Hewison here, wishing you a happy and prosperous May. I believe this month is going to be a very pivotal one for the stock market.

In the back of many traders' minds is the old market adage, "sell in May and go away". Is that what is going to happen this May? It is perhaps a little too early to tell as there are many, many factors in play the least of which is, of course, the presidential election which has electrified and gripped the country in a way that I have never seen before. Like always, I'm going to rely on the Trade Triangles to tell me what is going on in the marketplace.

MarketClub's Mid-day Market Report

This morning, Warren Buffett indicated that he would take his money out of the banks if he had to pay them to keep his money. What he was referring to was negative interest rates. Berkshire Hathaway, which is the operation that Warren Buffett runs, is a conglomerate of companies and has about $60 billion in cash that it keeps in the bank. With the current low-interest rates, Berkshire Hathaway is earning about $600 million a year as opposed to the several billion of dollars it would earn in a more normal interest rate environment.

So in essence when one of the top investors in the world indicates that he would pull his money out of banks, he was saying to Janet Yellen, the head of the Fed, to back off the idea of negative interest rates. Way to go Warren - I think you win this one. Continue reading "Did Warren Buffett Just Shoot Down Negative Interest Rates?"

An Aggressive Covered Call Options Strategy For Netflix

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

Netflix is a high-flying growth stock with a sky-high valuation based on its price-to-earnings multiple. Due to its rapid growth, expanding original programming, wrestling market share away from big cable companies, expansion into international markets and its overall ubiquity, it’s difficult to arrive at an accurate valuation based on traditional metrics. Due to these factors and the difficulty of placing an accurate valuation on Netflix, options in the form of aggressive covered call writing may be an effective way to leverage this high-flier while mitigating downside risk and generating additional income. Netflix offers a confluence of volatility, liquidity and a high level of interest which gives rise to high yielding premiums on a bi-weekly or monthly basis which bodes well for options trading. Selling aggressive covered call options (i.e. aligning the strike price at or near the current price) to generate current income may augment overall portfolio returns while mitigating risk. This may be particularly invaluable if one is long a highly volatile stock such as Netflix. Below, I’ll walk traders through an aggressive options trading strategy leveraging Netflix stock a proxy. Continue reading "An Aggressive Covered Call Options Strategy For Netflix"