Netflix ( NFLX ) has had a really strong uptrend run since the election and has gained a massive percent since their last call. Unfortunately, the most recent quarterly caused a clearly evident swing in emotions of traders, because the price crashed almost 1% only to rally back up in the after-hours from the reporting period.
So what is the hubbub all about? Well, Netflix is without a doubt a power-player in the tech/entertainment industry, but the competitive landscape is becoming fierce, with the likes of Amazon ( AMZN ) studios producing a hit winning accolades as well as the traditional box-office Hollywood entertainment market.
One can gather a lot of investing-intel from an release, and how upper management handles the call. Reed Hastings definitely had a “spin” on this release, urging analysts to focus on “long term” subscriber growth due to the hiccup this previous quarter. For us, this is a fundamental trigger to a stock price downswing, especially on the negative cash-flow expenditures the company is about to undertake for the next couple of years to acquire content. Since those costs are going nowhere but up, this is another negative trigger set to send the stock downward.
As far as the stock is concerned, we hardly ever go short and prefer selling a spread or buying a put option. For NFLX , this is no different. If you’re more risk tolerant, then the plain put buy works. If you want to play the “time-card”, and earn premium, then a skip-strike or vertical spread works as well.