Netflix (NFLX, $34.40, up $4.25) is having a banner day as the stock is up more than 14% after beating Wall Street’s expectations. The company reported a profit of $22.7 million, or $0.38 a share versus $15.7 million, or $0.23 a share from year ago results.
Revenue rose to $360 million, up nearly 20%, on strong subscriber growth. Netflix is rapidly approaching 10 million subscribers which is an increase of over 25% as they added another 718,000 for the quarter versus last year’s quarter. Some subscribers left the service but in the end, Neflix built its subscriber base.
Wall Street was expecting a profit of $0.34 a share on revenue of $354 million.
The company also announced a $175 million buy back of its shares.
The stock actually fell to a low of $29 on Monday ahead of earnings and those brave enough to dive into the February 30 calls (QNQBF, $4.90, up $2.20) are doubling their money today. Netflix has a strong brand-name and can be a volatile stock. However, the stock has been in a strong uptrend and has now doubled since its low of $18 in November. The 52-week high for Netflix is $40.90.
The question is…can Netflix break its 52-week high given the current market conditions? There are some options traders who think so. The March 35 calls (QNQCG, $2.60, up $1.30) have traded 1,000 contracts and there is a little action in the March 40 calls (QNQCH, $0.90, up $0.45).
If the stock can rally to $41 by March 20, then the March 35 calls would be worth $6 or more than a double from current levels. The March 40 calls would be worth $1. Of course, these targets could be reached a lot sooner if Netflix can extend its rally but that may be asking too much. The March 35 calls could be “in-the-money” by day’s end and it will be interesting to see what happens from here.
Another stock to keep an eye on is Imax (IMAX, $5.23, up $0.16) which traded above $5 yesterday. Here were my thoughts on the company back in early December:
“The one player I do like in the sector is Imax (IMAX, $2.73, down $0.08) and I have mentioned this stock before at much higher levels. I do not trust the stock enough to by any longer-term options but Imax could be a force in the movie industry down the road.
Imax has its fingers in a lot of pies and is developing some solid business partners and relationships with some top-tier names. The company recently inked a deal with Walt Disney (DIS, $21.94, up $0.48) and is strategically building the “Imax Experience” into a tidal wave.” —
To read the entire article, click here.
I’m not a stock trader but the trade made sense instead of buying options because the stock was so cheap and still is if Imax can grow their business the right way. If you got into the trade, I would set stops at $4.50 to protect your profits.
BTW, thanks to all of you who have sent me an email to be added to the Weekly Wrap. I can’t answer all of your emails but I do thank you for the time you take to write me. We are working on some exciting features for the newsletter and I will be bringing you details along the way. If you haven’t signed up yet, make sure you send me an email to get added to the list early.
Rick Rouse
Rick@OptionsMentoring.com
