As this sucker-bait flails around above an undeserved $400 a share, keep in mind my earlier assessment — that Netflix is among the most overpriced, overrated stocks on the Nasdaq. As such, we’ve been patiently waiting for an opportunity to short the stock. The rallies have been treacherous for bears, but as long as we do our shorting at rally targets and use out-of-the-money puts with tight stops, we can’t get dinged too badly trying. The next place we may want to do so is at the 429.94 target shown (assuming the precise stall Friday at the midpoint pivot is not bulls’ last gasp for a while). If you’re game to play, tune to my real-time guidance in the chat room or via email. That last option is available by checking the appropriate box on your My Account page. _______ UPDATE (10:53 a.m. EDT): In the chat room, a subscriber reported shorting stock at my target, so I’m establishing tracking guidance. I suggested taking a profit on 50% of the position at 427.50, which raised the cost basis for what’s left to 431.34. For now, tie the remainder to a 430.93 stop-loss that will be valid unless 427.27 is exceeded to the downside. _______ UPDATE (2:10 p.m.): To preserve the home-run potential of our very timely entry, I’ll suggest raising the stop to 430.64 for now. That’s just above today’s high. _______ UPDATE (3:40 p.m.): NFLX 430.93 stop aired in the chat room triggered, popping us out of tracking position with a small profit. In retrospect, and had I not been too distracted this morning to monitor the trade very closely, we could have legged on short 430 straddles expiring this Friday for perhaps $15. That said, the stock can be so vicious that taking a four-day at-the-money straddle short overnight carries risks that verge on unacceptable, at least for me. Legging on the straddle would have entailed shorting 430 puts first, though, and that part of the position would have borne no particular overnight risk 1:1 against short stock, although we’d have been giving up profits on a fall below 423. FYI, today’s price action strongly indicates that there are many others trying to hold onto short positions in the stock. That’s what the excruciating succession of marginal new highs — soon to be three in number in the space of an hour — is all about. ______ UPDATE (3:39 p.m.): I suggest re-shorting at the new rally target, 432.33, by buying four puts expiring July 3. Use the first way-out-of-the-money strike at which put options are trading for 1.00 or less, and place a 0.30 stop-loss on them after you’ve bought. This will limit theoretical risk to $120. The goal thereafter will be to short puts of a lower strike against the ones we hold for as much as or more than we have paid. FYI, the 432.33 rally target can be found on the 5-minute chart using A=423.40, today’s low.
