Whether you’re investing or trading in Netflix Inc. (NASDAQ:NFLX), it’s difficult to avoid a discussion surrounding an options strategy to augment this position. Netflix has an outrageous valuation and a wide range of intrinsic volatility, where swings of $10-$15 in one day are fairly common. This intrinsic volatility is more so pronounced during any major news story (i.e. expansion into international markets or subscriber price increases) and specifically around earnings announcements. As a result of the nosebleed valuation and volatility, in my opinion, options go hand-in-hand when committing capital to Netflix stock. Netflix is high growth stock thus investors are willing to pay a premium for this growth. However, the tradeoff is that traditional metrics such as the price-to-earnings multiple (P/E ratio) and the PEG ratio do not apply. Due to its rapid growth, expanding original programming, wrestling market share away from big cable companies, expansion into international markets and its overall ubiquity, it's easy to see why investors are willing to pay a premium for this media disruptor. Due to these aforementioned factors, an options strategy may be an effective way to leverage and hedge this high growth stock while mitigating risk. Netflix offers high yielding premiums on a bi-weekly or monthly basis whether one owns the stock or attempting a good entry point. This bodes well for those who are willing to leverage options trading to augment returns and mitigate risk throughout the volatile nature of Netflix’s stock. This could come in the form of covered calls and/or secured puts or a combination of call/put strategy. Netflix’s recent second earnings disappointment highlights the value of an options strategy to mitigate losses and smooth out drastic moves in the stock price. Continue reading "Trading or Investing In Netflix - Options Are Your Friend" →
