I’ve never been able to fathom Wall Street’s infatuation with this stock. NFLX’s streaming film catalogue stinks, their vaunted ability to predict which movies I’ll enjoy has lost whatever accuracy it once possessed, and their odds of justifying high earnings multiples as a producer of ‘content’ are hit-or-miss at best. Nor do they appear to be doing anything that an upstart competitor couldn’t do just as well, since there are few entry barriers. Some consider Netflix one of the best-run companies in America. If so, why did they shoot themselves in the foot a few years ago with a revamped pricing strategy so ill-conceived that the stock plummeted from $304 to $53 in less than six months?
All of which should be taken into account when evaluating NFLX’s long-term chart. Putting aside the perhaps too-obvious, bearish head-and-shoulder pattern that dominates the picture shown (click on thumbnail inset), my gut feeling is that the steep rally of the last three weeks is unsustainable and begs to be shorted. Typically, we prefer to do so by buying put options at rally targets precisely defined by ‘Hidden Pivot’ resistance points. The nearest one lies at exactly 376.33, but I won’t necessarily be taking a plunge at that price, since it is closely coincident with a distinctive peak recorded about a month ago. That being the case, I will be monitoring the stock’s lesser charts for the first sign of a turn-down. Ideally, we will buy out-of-the-money put options at a price top of at least short-term importance; then, if the stock subsequently drops as we might expect, we’ll short puts of a lower strike for as much or more than we paid for the ones we would already own. If successful, this would give us a riskless vertical bear spread at no cost. _______ UPDATE (2:18 p.m. ET): Following instructions posted in the chat room at 9:40, subscribers reported buying eight June 13 320 puts for 1.12. Now, offer half of them to close for 1.90, good-till-canceled. Also, and for now, use a stop-loss of 0.50 for the entire position. If you don’t currently subscribe but would like to track the process in real time, click here for a free trial subscription — no credit card necessary.