Skip Intro. $NFLX is Next up on your Watchlist.

Jim Cramer was on Fast Money Halftime today and said something that caught my attention. He said that one of the big knocks on Netflix USED TO BE that they were having to pay up for content, both original and otherwise. As recently as January, Michael Pachter of Wedbush continued to call Netflix a ‘House of Cards’ and that their purchases of content would sink them.  

Today NFLX was up on a note from Macquarie Research that raised the price target $300 to $330 and from neutral to outperform. They based this on subscriber growth and quality of content.  

I bring this up to show a flaw in fundamental analysis. Here an analyst in the past (maybe still now) has been bearish on a stock for the same reason that another analyst now says is bullish for the stock. 

Previously I have said there are flaws in technical analysis. If it was easy to call price movement based on technical analysis, everybody would be rich. Same with fundamentals. The truth is that we should all be skeptical of all the analysis. There is no guru that gets it right all the time. Most don’t get it right most of the time.  

What do I base my decisions on? First, I think that the macro trend is the most important. If the market goes up, most of the time that is a tailwind for other stocks. When consensus is overwhelmingly positive, that’s the time I’ll put on either a put spread or a calendar put spread and if there is a pullback in the market or the individual name, then I write credit spreads against them. 

I also love it when a name I am interested in pulls back for no real reason. For instance, I bought calendar call spreads in WalMart after its pullback and then added put spreads when it gets a little strength.  

As for $NFLX, I was already long May/April calendar put spreads. I rolled up and out on a few call spreads which I was able to do using the ‘custom’ strategy on my trading platform. I sold a March 16 260/270 call spread and bought a April 20 300/310 call spread in its place. I was able to pull 3.4 out of each set of contracts with this.  

I think the bull run in NFLX continues and I will keep buying calendar spreads on the way up. 

Leave a Reply