3 O'Clock High: NetFlix & Presidential History
Minyan "Maker's" Mark writes:
Wondering what you think of the notion of fading the NetFlix (NFLX) upward guidance here. As you probably know they did a quarter end promotion and LOWERED prices. Sounds like they are reaching for customers to me . The churn rate may rise leaving some bulls doubled up on the negative margin business they were once in. At least that's my reasoning behind having bought puts.
I believe your trade is working already, with NetFlix having popped to 29.49 this morning and fallen almost 2-bucks in a straight line since. The analyst report from Piper Jaffray I mentioned earlier this morning was a deeply "strange" call, in a timing sense, and probably helped put in a near-term top on the stock.
What made the call "strange" and how could our "pop n' drop" lesson from NFLX today be applied to other stocks during reporting season? Consider...
1. NetFlix pre-announced positively on September 29th. As of the price at last night's close, NFLX's stock was up about 20% since that boost.
2. NFLX is up 125%, give or take, for 2005 YTD.
3. "Follow-through upside momentum" seems like a very low probability bet for companies reporting so far this quarter.
Given all that, anticipating further upside reaction to numbers we've already heard seems like a long-shot bet for the analyst to be making. Said another way, were I running institutional money, and had been smart enough to hold my NetFlix all the way here (rather than selling shortly prior to that guidance raise... *GACK), I would have been almost legally required to sell some of the position on this morning's spike.
Who would I have (hypothetically) sold to? Piper Jaffray's retail client base, placing buy orders after their broker sent them some research looking for NetFlix to rip higher after the co reports.
Given that I sold and missed the move to 29+, and you are long puts w/ the stock off nicely, the question "why would you ask me?" could be fairly asked. That said, I'd take some of my gains right now, were I in your (long put) position. My logic would be: a) The action this AM is likely flushing some of the panic you'd need to get a bigger drop b) Apple (AAPL), along with NetFlix the go-go mo stock of the year, disappointed and didn't follow through to the downside (suggesting that the dip could get bought, if/when) c) NetFlix has been pole-axing the shorts all year... like the homebuilders, it's going to be a great short someday. Also like the homebuilders, it's going to kill the vast majority of the bears before it rolls over d) It's really hard to overstate just how horrible Blockbuster (BBI) really is.
In my second-guessing-myself opinion, a good albeit gallingly simple case could be made for staying long NetFlix until Blockbuster goes Chapter 11 or gets taken private.
Today's Slightly Naughty "Age Joke of the Day" in honor of Mrs. Jeffmacke's Birthday!
Courtesy of Prof. Loz McGuirk:
As we age, our priorities change. The other day I came home and was greeted by my wife, dressed only in very sexy underwear and holding a couple of short velvet ropes. "Tie me up," she purred, "and you can do anything you want."
So, I tied her up and went out and played 18 holes of golf !!!
As coincidence would have it, I'll be trying to squeeze in a quick round prior to taking the Missus to dinner tonight (she can't wait to finally be able to order wine using a real ID!).
You newlywed Minyans take note: Golfing on your spouse's birthday is an extremely high-risk marital maneuver, involving significant personal risk. Consult your mother-in-law and/or financial advisor prior to attempting yourself.
Jeffmacke's Uncomfortable but True American History Facts!
In a tizzy over the current Administration's "Historically Low" Approval Ratings?
Let's run through some of our twice elected Presidential history:
Jefferson: First term Louisiana Purchase victory offset by economy-crushing tariff policy in term two.
Madison: Literally got the White House burned to the ground.
Lincoln: Shot less than a month after 2nd inauguration
Wilson: Still hopeful that the League of Nations will get a fair chance.
Nixon: Gave us the still-in-use "Gate" suffix which was later used to chronicle the second term collapses of...
Clinton: Monica-Gate! Taught a nation how to explain "oral" and "DNA" to their nine-year olds.
The Republic will survive.
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