Call Options Or Put Options On Netflix (NFLX)?

| May 31, 2013 | 0 Comments

Netflix (NFLX) provides Internet television services such as enabling subscribers to stream TV shows and movies directly to computers.  Most of you have probably heard of or used NFLX’s services.  The stock is also typically quite volatile.

NFLX is currently trading for $219.06.  The stock is down 10% over the past week but is up 131% year-to-date.  The shares are up an impressive 315% off the 52-week low of $52.81 and are down 12% from the 52-week high of $248.85.

Is this an opportunity to buy call options on NFLX due to the massive market for its services?  Or should you buy put options on NFLX because the company’s ‘Arrested Development’ launch has been less successful than anticipated?

The bulls make a convincing argument…

Looking at short-term news on NFLX isn’t the way to judge the company.  The key is to understand just how huge the potential market is for the company’s products and services.

Netflix already has a whopping 36 million subscribers.  And, it added 3 million subscribers just in the last quarter.  However, the number of pay-TV consumers in the world is expected to hit 900 million or more this year.

Think of how much more NFLX can grow as it expands and taps into new opportunities.  Not to mention, the company is known for taking chances and rolling out new methods to reach out to consumers.

But the bears have a compelling case as well… 

One of NFLX’s big revenue generator’s this year was supposed to be its re-launch of the extremely popular ‘Arrested Development’ sitcom.  NFLX is the only place to see the new shows.

However, so far, the new shows have received mixed reviews.  And suddenly, investors aren’t expecting as big of a revenue jump as projected for the company.  Not to mention, if something as popular as ‘Arrested Development’ doesn’t take off, how will other NFLX products fare?

And keep in mind, NFLX is already trading at an extremely lofty valuation of over 500x trailing earnings.

Is NFLX’s huge market opportunity enough to overcome negative reviews of ‘Arrested Development’?

If you think the bulls are right, take a look at buying the NFLX July $270.00 calls for around $2.75.

If you think the bears are right, take a look at buying the NFLX July $180.00 puts for around $3.00.

Yours in Profit,

Gordon Lewis

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Category: Options Trading

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also one of the key analysts behind the highly successful Options Trading Wire and Advanced Options Adviser. As a market maker on the floor of the CBOE, Gordon analyzed and traded stocks and options across a broad range of market caps and industries including retail, internet, oil, insurance, and telecom. He often traded thousands of options contracts per month… and it’s fair to say, Gordon’s analyzed and invested in some of the most complex and successful options strategies in the world.

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