1:00pm (EST)
We haven’t mentioned Netflix (NFLX, $74.84, up $0.94) in a while, but it is stock we watch every day. In fact, we wanted to talk about it today for a reason and to give those of you who aren’t subscribers a look inside our exclusive Members Area.
Sometimes in option trading when the market is flat or hard to read it’s easier to look for trades six months to a year out which are often referred to as LEAPs.
In November 2009, we profiled a Netflix call option trade and here were our initial thoughts (quotes are from 11/13/09):
“Netflix (NFLX, $58.19, down $1.25) is a company we are watching now because it has the look and feel of a stock that wants to go to $100. Right now it’s at 52-week highs and we are waiting for a break above $60. Nice round number huh? Well, the exact 52-week high is $59.89 and a break above $60 could lead to more momentum.
For high risk traders, you could play the November calls for a day trade or longer but realize these options expire next Friday. The safer play would be to look at the December calls. If Netflix does break $60 then we may send out an alert based on market conditions.
One interesting thing and here is where our new trade comes into play.
If Netflix could manage to make a run to $100 by June 2010 then we will do very well with this trade. The big reason we think the stock could go to $100 by next summer is due the serious sense it makes for someone to buy them.
Microsoft (MSFT, $29.36, up $24) already has a partnership with Netflix and would be the most logical choice. Combining the xBox with Netflix’s Roku box seems like a match made in internet heaven.
You want to know why Blockbuster (BBI, $0.83, up $0.02) is closing shops faster than a beach bar going into winter. If you have a Netflix mailing plan you can get unlimited streaming of 50,000 movie and TV shows by getting this Roku box. Just go to your computer, find the movie/show you want and enjoy it as soon as you get to the couch.
Come to think of it, Apple (AAPL, $201.99, down $1.26) would make a good fit too. Either way, even without a buyout offer, Netflix could have the muscle to make it to $100 in 8 months on its own. We would love to see the stock come back down to $55-$56 which is where short-term support lies but we will also be watching for the break above $60.” (END)
Here were out thoughts two weeks later after we were stopped out on the Dubai news. We had a tight stop on this trade and here were our comments outside the Members Area before the open (quotes are from 11/27/09):
“After pushing the major averages to new highs for the year, the bulls will be in trouble today as the bears looked poised for a HUGE market correction today. We were up late checking the futures market and shortly after midnight the Dow futures we down a whopping 247 points to 10,195. The S&P 500 futures are off by 32 to 1,076 while the Nasdaq 100 futures are lower by 54 points to 1,740.
There is news out of Dubai that shook the Asia markets and there was a heavy sell-off as investors worried about banks’ exposure to Dubai World’s debt. Dubai World is the city state’s largest corporate entity and has asked creditors for as six-month stay on debt repayments of nearly $60 billion.”
Inside our Members Area that day:
2010 June 80 calls (QNQFP, $1.40, down $0.25)
Entry Price: $1.65 (11/13/09)
Exit Target: Closed at $1.25 on (11/27/09)
Action: Netflix got hammered at the open and traded to a low of $54.71 shortly after. Needless to say we were stopped out on both trades.
We did pretty well today by cutting our losses and taking the emotion out of our trades. Yes, some of the positions bounced back but we feel a lot better going into the weekend with a clean slate for next week.
It is rare a risk event this big hits the market but they do happen. As an option trader, it doesn’t matter how much you like a certain trade…just take your lumps and regroup. We target 100% returns on our trades which gives us the luxury of having two 50% losing trades for every winner. Our success rate is much better than that of course as we have been able to hit on 8 out 10 trades on average for 2009.
However, there are times when the market will whipsaw us out of some great trades and you just have to go back to the drawing board and figure out what it all means. That is what we will be doing this weekend and we will be back with an update on Sunday night.” (END)
The point we want to make is that the Netflix June 80 calls (QNQ100619C00080000, $3.50, up $0.47) have now doubled which showed our research was spot on. Although we had a “tight stop” on this trade sometimes it pays not to have one and go with your instincts.
This trade ended up getting ridiculously cheap as Netflix dropped to a low of $48 by mid-January. However, the stock jumped 13 points when Netflix announced earnings and closed above $60. The company is also working on becoming a global force in the near future which really got Wall Street excited.
It’s important to keep these things in mind when looking for new trades or waiting for stocks to breakout but we should have revisited the story once shares broke through our $60 resistance level.
As far as the market, the bulls are struggling to hold the morning gains as the Dow is up 5 points to 11,900. The S&P 500 is flat at 1,172 while the Nasdaq is higher by 2 points to 2,405.
We are profiling another NEW TRADE in today’s write-up so let’s get to the Members Area…
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Bulls Putting Up A Fight
Wednesday, March 31st, 2010
1:00pm (EST)
A lot of market pundits were calling for a nasty session before the market opened as futures looked weak after the ADP report. We went over the numbers this morning and the debate is ongoing as to what clues this holds for Friday’s non-farm payrolls number for March. The market, however, will be closed Friday in observance of Good Friday, so the reaction won’t hit until Monday.
This is what makes trading a little more difficult because of the unknown. Do we get a good report and have a huge surge on Monday or is it the exact opposite? Or do we come in flat and the market continues its slow methodical crawl higher?
In other economic news, a disappointing Chicago PMI reading for March after the open gave the bears more ammo. The figure came in at 58.8, but the pencil pushers had called for 61 after a reading of 62.6 in February. This pushed the market to its lowest levels for the day.
However, the bulls got some good news after the Commerce Department report that factory orders rose 0.6% last month versus expectations for an increase of 0.5%.
As a result, the Dow is currently down 15 points to 10,892 while the S&P 500 is flat but fractionally higher at 1,172. The Nasdaq is up a couple of points to 2,408.
S&P 500 Hourly Chart
Wall Street is also expecting some ”window dressing” today which simply means fund managers might be selling stocks to lock in gains at the end of the quarter while looking for new ones to make their portfolios look better. We don’t think this event will have much impact because the smart fund managers are holding on to their winners for even further gains.
Turning to stocks, Research In Motion (RIMM, $74.67, down $0.25) will report earnings after the bell and we are sure shares will be active in after-hours trading. Analysts expect the company earn $1.27 per share on revenue of $4.3 billion.
RIMM Hourly Chart
The company has given a forecast of $1.23-$1.31 and revenue of $4.2-$4.3 billion. It will be an interesting report because it comes out on the heels of all of the Apple (AAPL, $235.63, down $0.21) good news.
Guidance will be key for RIMM and we think the company will have to smash earnings for shares to get a significant pop.
We will be back in the morning but we want to get inside our Members Area as we have a lot to cover.
Tags: AAPL, option picks, option signals, options alerts, RIMM, RIMM earnings, stock options trading
Posted in Apple, Company Commentary, Market Analysis, Market Commentary | Comments Off