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"

Netflix Losses Mitigated By 86% - A Covered Call/Secured Put Strategy

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

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 Inc. (NASDAQ:NFLX). 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. Whether you’re investing or trading in Netflix, it’s difficult to own the stock without an options strategy to augment the long position or prospective position. I’ll discuss a covered call/secured put combination strategy to unlock additional value, mitigate risk and generate income. I’ll break this strategy out into legs to exemplify the power of options when dealing with an intrinsically volatile stock with significant upside potential such as Netflix. Continue reading "Netflix Losses Mitigated By 86% - A Covered Call/Secured Put Strategy"

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"

Supercharging Portfolio Returns - Empirical Options Data

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

I’ve written many articles highlighting the advantages options trading and how this technique, when deployed in opportunistic or conservative scenarios may augment overall portfolio returns while mitigating risk in a meaningful manner. Options trading in layman’s terms can be described as a parallel to owning a rental property. One owns an asset that he is willing to leverage in the form of a tenant occupying his home for monthly rent. In the case of options trading, one owns shares and he is willing “leverage” these shares for “rent” or in the case of options, a premium. In this scenario, the owner of the home gives the tenant the option to buy the property or rent to own if he/she desires prior to a specified date. For the owner of the stock, he is providing the option to buy the underlying security at a specified price on or before a specified date. From the renter’s perspective, if the home value is increasing and the housing market is strong and on an uptrend, the renter would exercise this option and elect to buy the home. In the case of options trading, the renter of the stock would exercise the option to buy the shares if the shares rise significantly and lock in the lower, agreed-upon price. In the housing scenario, the renter elected to have the option to buy however didn’t have the obligation to purchase the home. The tenant witnessed home values increasing and decided to exercise the option to buy and capitalize on the rent he was already paying into the property. For the renter of the stock, the renter had the option to buy the underlying shares however he didn’t have the obligation to purchase these shares. The renter of the shares witnessed the stock take off and decided to exercise the option to buy and capitalize on the “rent” he had already paid into the option contract. As the owner of the property/stock, the ideal scenario is to own the property/stock and continuously collect rent/premiums on a monthly basis without relinquishing the property/stock. I will provide an overview of my empirical case study based on my options activity during Q2 2016 (Table 1). Here, I’ll provide details focusing on optimizing stock leverage via covered calls. Emphasizing the ability to sell these types of options in an opportunistic, aggressive and disciplined manner to generate liquidity while accentuating returns and mitigating risk via empirical data. Continue reading "Supercharging Portfolio Returns - Empirical Options Data"

Covered Call Strategy Produces Double-Digit Return

Noah Kiedrowski - INO.com Contributor - Biotech


Introduction

I’ve written a series of articles detailing the utility of options and how an investor can leverage a long position in an underlying security to mitigate risk, augment returns and generate cash without relinquishing the security of interest. I’d like to highlight Salesforce.com Inc. (NYSE:CRM) as an example for a covered call strategy. I’ll be highlighting how I’ve successfully extracted an additional double-digit return via leveraging the underlying security while collecting option premiums over a nine-month span. Taken together, the synergy of the options income and appreciation of the underlying security has yielded 23.6% over this timeframe. Continue reading "Covered Call Strategy Produces Double-Digit Return"