Looks like, I got off the train
too early. I wish, I held my bullish portfolio for few more days than I did. Markets
seem to be jubilant this morning, with good news from all sides. They have come
a long way, in last three months. Stocks are not cheap any more and in most
cases, reached the price targets for the year. It makes more sense to be a bear
now. I will remain bearish on the markets
until there is a 3 to 5% correction.
For February options cycle, I am placing
bearish trades on Netflix (NFLX) and LinkedIn (LNKD).
Netflix:
There was no reason to celebrate the 600000 new subscribers added by the company
in last quarter, especially after the company lowered its forward earnings. It only makes sense, to use a free subscription offered by NFLX for a month
during holidays. NFLX was the most hyped company and now a broken one. It is
only a matter of time before Amazon starts subscription streaming with its
cloud and Kindle fire, and do it more efficiently.
NFLX has almost doubled from its November bottom and trading today at
$126. Price targets range from $90 to $110. Stock is due for a pull back and also
faces resistance at $130. I am selling credit spread by buying February $140
calls and selling $130 calls. Net credit for the spread is $2.40. If the trade
moves against me, I could have a max loss of $7.60. It seems stupid, to risk
$7.60 for $2.40, but it makes sense to me today.
LinkedIn:
This is probably the most overpriced stock in the continent, trading at 140
times forward earning. It’s almost a gift that stock has gained $8 in two days.
Stock is trading today above $80. I am buying a put spread by buying February, $77.50
calls and selling $70 calls for net debit of $1.90. My max loss will be $1.90
and max profit will be $5.60. Earnings
are due on February 9th. Stock had an excellent run and I don’t see
upside potential even if there is a positive earnings surprise. Stock is in a
down ward channel and has reached the resistance line.
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