This week I opened 30 puts in NFLX. Nflx was trading around 200. I opened the 165 strike and received .65 in premium. Nflx had continued its upward journey and then topped out and has fell for two straight days. The stock is now trading around 197. the premium has risen to around 1.10.
So my question is, do I close the position and take a loss of around 1,000. or wait. My decision is based on the following. (but could change in a heartbeat)
PRO'S
1. Nflx is not that far from where it was when i opened the position.
2. The business is booming.
3. (and the main positive point) Time is on my side. I still have over 30 of cushion. 30 points is a lot to fall with a stock that is doing this well. The first few days of dropping can be called..profit taking.. removing the fluff.. etc. But at some point resistance to dropping should kick in and level off the stock or even take off upward again.
4. The rising of the premium hasn't yet reached by line in the sand (doubled)
CON'S
1. Everyone hates to take a loss, don't let this feeling obscure your view of the facts
2. There is no rule that the stock can not keep falling
3. It is getting close to a double and an automatic 'close.'
So today i will watch it and bail if I have to.
Decisions decisions..
6 comments:
Agreed on your NFLX logic though I like the odds with only 11 trading days left. I just opened some WYNN 90 puts for 0.27 or 2.2%. The stock is holding firm around 105 leaving about 14% cushion.
I keep hearing of WYNN, I guess I should look it up and see if I should add it to my 'list'.
Brings up a good point. I often get the question "where do you get your stock ideas" Well traders, this is usually where it happens...
Hi Glenn, wow, WYNN has an awfully high PE ..320+
As a resort stock, maybe they have other things going for them but usually that type of stock has no 'gang-buster' product line or great things coming down the pipe. It would probably be the deciding thing making me avoid them. Doesn't mean that they would not work in my model, ie; lots of cushion. But I would keep lots of cushion.
Jerry
LVS is falling like a rock right now....Glad that Jerry you are not in it. I was in DEC 43 but I got out early this morning as the chart looks bearish.
Hi Hannah, good to hear from you. Yes LVS is super volatile !!! That can be a great advantage in letting us pick a strike that is FAR away from the existing stock price. Also really high volume! I tried the CC's on a weekly options thinking that 'what could go wrong in a week.!!!
Reached for the golden ring and got slapped back to reality..lol
Like a 4-star sauce in a Thai restaurant.. use with caution..
Yes, WYNN trailing PE is high but I'm usually looking more at the forward PE which is based on consensus estimates and I believe it's the number reflected in the market price. It is 45 for WYNN compared to 52 for NFLX. Also NFLX is up about 265% YTD vs 80% for WYNN. They are both risky stocks with crazy multiples. With VIX so low these type of plays still offer decent premiums.
Post a Comment