It”s almost been a couple of weeks since I’ve mentioned NetFlix (NFLX, $30.09, up $0.15) and the last time I talked about the stock it was trading just shy of $32. Neflix shares traded under $30 a week after the 8/14 blog and yesterday’s small gain pushed it back over $30.
On Monday, the company said it was a faulty piece of computer hardware that caused a website breakdown that delayed millions of online DVD shipments to it’s customers. I said at the time that the outage could affect up to a third of Netflix’s customers. I wasn’t looking for a huge breakdown in the stock just enough to make some decent cash on an option trade. The stock has only fallen about $2 since, or 7%, but the options have provided a much better return with much less money.
The September 30 puts (QNQUF, $1.40, down $0.05) were originally profiled at $1.07. These calls were a little higher last week but they are still up nearly 40%. These calls do not expire for another three weeks so there is the possibility of making a few more dollars on the trade. However, a 40% profit is nothing to sneeze at. I would set stop at $1.30 and maybe even sell half of the position when the opening bell rings this morning.
Netflix has a strong brand-name and is a volatile stock. It’s easy to get whip-sawed out of trades in a market like this so it’s prudent to protect your profits. If you don’t you could easily find yourself on the wrong side of the trade.