Neflix (NFLX, $37.47, up $0.62) has managed to trend higher all week but keeps facing serious resistance at $38. Shares traded lower for most of day after an analyst downgraded the stock but managed to rebound by the end of trading. The analyst went on to say that he thinks the fair value for the stock is $25 and that the run in the stock could be over.

Sometimes I still can’t believe there are people on Wall Street who get paid for analyzing stocks. Where was this dude when the stock was at $18 in November? If he has/ had a target of $25, then why didn’t he make that call back then to “buy” the stock or issue an upgrade? That would have been about a 40% gain if he had stepped-up to the plate back then. I still like to remind you of the analyst who threw a “buy” rating on Lehman Brothers (LEHMQ, $0.04 down $0.01) when the stock was at $30 last summer. How did that one work out for investors?

Back to Netflix. The March 35 calls (QNQCG, $4.40, up $0.30) are still open and were entered at $2.60. The stop is set at $3.20 but we let’s raise it to $3.90.

The March 40 calls (QNQCH, $1.85, up $0.10) were trading for 90 cents and are still a double at current levels. Stops are set at $1.20 but they can be adjusted higher to $1.35 which also gives us a 50% gain if we are stopped out.

The stock looks poised for either a breakout or a fall back to the lower $30’s. The stock is also heavily shorted and there could be a chance for a “short-squeeze” which would easily push the stock above $40 if those who were short the stock had to cover their positions.

I’m not sure if we get that type of movement today but expiration for the February options are winding down and only have two weeks before they expire. The strike price battle lines will probaly be the 35’s and 40’s for the call and put options so this could get interesting.

Rick Rouse
Rick@OptionsMentoring.com