NFLX Options Plays

[deftone 10]

Are we considering to take advantage of the Netflix stock split?

 

They are assuming that by splitting it up, they will increase the overall value due to retail investors and others who can only afford low stock value.

 

i.e it could go from $600 to $50 overnight and split up.

 

Look at its growth (from an article).  The growth is insane in the last month.  Its speculative, but there's tons of money to be made here, even non-directional such as a Straddle?

 

 

 

Netflix stock’s path to its $100 milestones Milestone Date of first close above the milestone Trading days since the first close above previous milestone

$100 April 22, 2010 1,993* (~1 month short of 8 years)

 

$200 Nov. 30, 2010 155 (~7 months)

 

$300 Sept. 10, 2013 699 (~2 years, 9 1/2 months)

 

$400 Jan. 28, 2014 97 (~4 1/2 months)

 

$500 April 16, 2015 307 (~14 1/2 months)

 

$600 May 15, 2015 22 (1 day short of a month)

 

 

Edited May 19, 2015 by deftone

[Yowster 8,789]

There is not really anything options related to take advantage of the split event itself.  The splits are typically viewed as a bullish indicator,so any trade would be directional/speculative based on this.  The lower price stock would make directional/speculative option plays cheaper to trade.

 

However, the NFLX split has the potential to be a very bad thing for our typical SO pre-earnings calendars, my only hope is that the split doesn't make the stock price too cheap - I'd still like to see it's post split price $100 or above, ideally.  We've seen some other stocks go through a split that reduced the share  price significantly and then their pre-earnings calendars were not as good a performer.  Cheaper stock prices mean cheaper calendars which mean larger allocations are needed that are more commissions intensive.  But, at least in NFLX's case, liquidity should not be an issue for larger allocations.

Edited May 16, 2015 by Yowster

[deftone 10]

There is not really anything options related to take advantage of the split event itself.  The splits are typically viewed as a bullish indicator,so any trade would be directional/speculative based on this.  The lower price stock would make directional/speculative option plays cheaper to trade.

 

However, the NFLX split has the potential to be a very bad thing for our typical SO pre-earnings calendars, my only hope is that the split doesn't make the stock price too cheap - I'd still like to see it's post split price $100 or above, ideally.  We've seen some other stocks go through a split that reduced the share  price significantly and then their pre-earnings calendars were not as good a performer.  Cheaper stock prices mean cheaper calendars which mean larger allocations are needed that are more commissions intensive.  But, at least in NFLX's case, liquidity should not be an issue for larger allocations.

 

Although its bullish I'm very afraid to trade it directionally.

 

I have a hard time understanding the current trend or expected evaluation that Netflix is worth $1000 per stock.

 

I guess I should learn how to backtest properly and see how applying Straddles and Strangles to Netflix work out.  Trying to get a guess on whether applying a Straddle before a split would be worth it.  I can see a split also cause a price drop if we have a hit to the market around the same time (S&P500 at its greatest height).

[deftone 10]

Here's a great example of its craziness and how its so risky.

 

Buying a $1375 620/615 strangle on Monday, will net you a tiny loss today despite me trying to sell it at both the upper and lower underlying spectrums its been since then.  Its as if the Implied Volatility is either too high and so any movement has no effect on it, or it simply ignores IV for pricing if its less than a $20 move.

 

The problem with that, is its only moving about $6 a day with wild swings.  If you buy stock for months, sure you might get rich and that's the only play here, but at the risk of losing your account.  We've seen Netflix drop 50% before easily.

 

You can make some cash on the calls.  i.e :  620 call :  $725  Monday is $1075 today.

 

But, if you call it the wrong way, for example :  615 put :  $650 Monday.  is $272 today.  Catastrophic loss with only a 1% movement of the stock up and down.

 

Very little movement (less than 1%) and huge Options price swings.  With poor non-directional payout.

Edited May 19, 2015 by deftone

[Yowster 8,789]

My two cents - I hate using straddles/strangles outside of a pre-earnings play as the time decay will kill you if you don't get a big move in the stock quickly (unless you are buying one many months away from expiration which can be a big capital outlay for a higher priced stock).  With pre-earnings, you get the increasing IV offsetting theta decay so the time effect is minimized ("renting the straddle/strangle" as Kim calls it).  Outside of earnings events, however, the theta decay can really impact the trade in a bad way if you don't get your big stock price move quickly.  For trades outside of earnings events, IMO use structures that are long some options and short others which will both minimize the IV impact on your trade and make the theta work in your favor.   There are many different trade structures that you can use depending on your outlook for the stock - minimal price movement, directional bet, big move in either direction, etc.

[deftone 10]

My two cents - I hate using straddles/strangles outside of a pre-earnings play as the time decay will kill you if you don't get a big move in the stock quickly (unless you are buying one many months away from expiration which can be a big capital outlay for a higher priced stock).  With pre-earnings, you get the increasing IV offsetting theta decay so the time effect is minimized ("renting the straddle/strangle" as Kim calls it).  Outside of earnings events, however, the theta decay can really impact the trade in a bad way if you don't get your big stock price move quickly.  For trades outside of earnings events, IMO use structures that are long some options and short others which will both minimize the IV impact on your trade and make the theta work in your favor.   There are many different trade structures that you can use depending on your outlook for the stock - minimal price movement, directional bet, big move in either direction, etc.

 

This is wise.

 

I was trying to find other ways to play directionally, but I think you guys have it all worked out that non-directional is superior.

 

You are right to short some options because you can't go 100% Long, you can lose your account with Netflix in Long Options outside of earnings

[deftone 10]

You see that today?  From $620 to $630 down to $615 all intra day.