Tuesday, March 8, 2011

Netflix under pressure...Are people seriously going to watch movies on Facebook?

NFLX came under pressure today, as it was announced yet another competitor is entering its streaming entertainment space. MarketWatch has the details

For NFLX to be down on such a buoyant day for the overall equity market is certainly no good omen. NFLX, however, has completely and totally destroyed short sellers throughout it's meteoric rise that arguably began in February of 2010 when the stock was around $60, so I would hesitate to suggest getting short. Longs, however, should check their risk at the door if they have not  already.

A look inside the option market shows that today investors traded more puts (97,043) than calls (74,713) and traders took in a net credit of about $1.1mm in premium on those calls while spending about $2.5mm of premium on puts. Certainly not bullish looking action, but I would not draw too many conclusions based on these details. Consider that there are likely many traders that have been long and could be employing a variety of strategies to hedge their gains at this time.

Courtesy: LivevolPro

With today's price action, NFLX moves into the gap shown below and I would look for it to make an attempt to fill that gap at some point in the near future.

Courtesy: Worden

Anyone playing NFLX from the long side here I think has to play it cautiously because of the aforementioned gap, but the skew is certainly up in the puts, which provides an opportunity for a trader looking to sell premium and get long deltas. The margin on this sort of trade is likely pretty nasty, so consider buying some cheap farther OTM puts to get some margin protection, as well as disaster protection. Looks like there might even be a really cheap fly in the OTM front month puts that could be great if you legged into it.

Courtesy: LivevolPro

If you are a premium seller, remember IV can still go up from here. In fact, its not without precedent. Take a look at the recent IV30 hi's. Buena suerte.

Courtesy: LivevolPro

While we are on the subject of NFLX, I have to say I think it is completely ridiculous that I have to pay for XBOX Live in order to watch Netflix on my Xbox. Weak.

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

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