You risk what you paid for the contract. He recommends options on stocks after they announce earnings — based on their historical performance. Good investing, Kristen Barrett. Many others are looking at the wrong companies.
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Why Netflix Options Are a Better Buy Than NFLX Stock
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Every day, we send you our very best ideas to help protect and grow your wealth. Sign up below for free. Annie Stevenson Managing Editor. This copy is for your personal, non-commercial use only. Some stock investors soured on Netflix after it released its second-quarter earnings on Monday and reported missing its forecasts by more than a million subscribers in the quarter.
Netflix shares ticker: NFLX , after having almost doubled in , are down 8.
Netflix CEO Pocketed $24M—Mostly Via Stock Options
But the options market reflects a sunnier outlook on the media giant. Investors optimistic about longer-term subscriber growth can position for a rebound. In May, the company, which has been investing in original content, signed a deal with former U. This indicates low demand for put options that pay out if shares drop further. The ratio of bearish options to bullish options also ticked below average this week, the data show.
Investors can also exercise the options and buy or sell the underlying stock.
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The sale of the two calls helps finance buying the call options but also caps any gains. This strategy profits if the investor is right about the stock price upon expiration. See also: How to Buy Netflix Stock. In all, the trader bought 1, Netflix call options near the ask price and sold of the same contracts within a five-minute stretch.
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Another contracts were traded near the middle of the bid-ask spread, trades typically considered neutral. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock. In this case, given the relatively large size and timing of the call purchases on Tuesday, they could certainly be an institutional hedge. More Netflix Upside Ahead? Netflix investors were also pleasantly surprised when the company said it could consider implementing a share buyback program in the near future now that it appears to have become consistently cash flow-positive.