Watching Netflix $NFLX (January 23, 2020)
NFLX
Last night in my Chart of the Day video I suggested not buying Netflix ( NASDAQ: NFLX ). The reason was because I just didn’t feel like it was quite low enough and it had another day to sell-off. That turned out to be, as my law professor Larry Levine said when I would answer a question. He would say, “Mr. Fitzpatrick, you couldn’t be more wrong.” This is the case here. I thought that Netflix ( NASDAQ: NFLX ) might have a little more selling and then it would be a good opportunity to buy and that turned out to be wrong. It was a good opportunity to buy right at the open; the stock shot up $23.00, over 7 percent so I totally screwed that up.
However, here’s the deal, here’s the story for me: I was teaching a day trading class earlier this morning and we were looking at other things. I wasn’t looking at Netflix ( NASDAQ: NFLX ) and so I didn’t trade it during the class. But afterward, I was looking at the market and you could see Netflix ( NASDAQ: NFLX ) had run up quite a bit. It was after the stock had kind of tapered off a bit, it might have even before the stock fell that I made a trade. I didn’t trade the stock I felt like I had missed the stock trade, and I did so I did not buy the stock.
What I did is, I sold some puts. I sold the 330.00 puts, which effectively gives me a long stock position. If the stock falls down to 330.00 I am going to be forced to buy the stock so I am effectively setting my entry point. If I could get the stock at 330.00 I will go ahead and buy it. As many puts as I sold I will buy it all.
But here’s the thing, even if the stock pulls back a bit my trade is still going to make money. It would literally have to fall below 330.00 to about 327.00 in order for me to lose money on this trade because I also bought the 320.00 puts so I did what’s called a bull put spread. So I made a bet, that’s what it is, it is a bet; I made a bet that the stock would not fall back here. I did not make a bet that the stock would continue to go up, that it would go flat, any of this, even that it would just pull back. Like this was not my bet, I didn’t bet that. I bet that the stock would not pull back to 330.00 and I look at that as a pretty good bet so I kind of like my chances on that trade.
Now, if you want to trade just the stock, and I tend to be just a stock trader these days I don’t need to trade a lot of options; I would wait for the stock to break out above350.00 and make sure it’s on heavy volume. We are probably going to see it up tomorrow if the NASDAQ is up. But the thing is, the stock hit 349.88 today so it didn’t get up to $350.00, that is where all the supply is. You have to wait for the stock to run above that because that’s the evidence you need that there is no more supply at 350.00.
A lot of people will say, “I will sell the stock when it hits 350.00”, they will put in their limit orders there. You are not going to hear too many people say, “Ill the stock when it gets to 351.00. Yeah, that’s the ticket.” They are not going to do that so they set these limits at the even numbers. So you have to wait for the stock to get through there and if it does I see a whole lot of blue sky here that the stock can run with literally no resistance whatsoever. Because all of the folks that bought at higher levels back here, they have either forgot that they own the stock and they are not going to do anything. Or more than likely, they have sold somewhere along the lines before the stock is where it is now.
So this might as well just be at its all-time high for the simple fact that you are not going to have a lot of regrets back here waiting to sell the stock. All of that has already been done, which is why the stock fell down here. So that’s my trade selling puts here. Your trade, you could do the same thing if you want. Or buy the stock when it breaks out above 350.00. That’s it. Again, my apologies for an incorrect analysis yesterday I told you to do the exact wrong thing.
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