A back spread, or ratio back spread, is a bullish spread that consists of selling a number of call options and buying more options of the same underlying stock with the same expiration date at a higher strike price. In other words, a back spread has more long contracts than short contracts. When reading this type of spread, the lower strike is generally stated first, whether it is long or short. Back spreads are very flexible, and can be executed for debits, credits, or even money when there is no debit or credit.
The back spread profits when the underlying stock price makes a move to the upside toward, through and beyond the long strike. The call back spread has limited risk and unlimited profit potential. The bigger the ratio of short options to long options, the more risk involved.
Showing posts with label Netflix. Show all posts
Showing posts with label Netflix. Show all posts
Monday, May 9, 2011
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.
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.
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| Courtesy: LivevolPro |
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