Netflix has grown despite a catastrophic period 1½ years ago when their announcement of an unpopular change in subscription plans and price hikes drove away customers. This move, however, appears to have a high potential payoff in the long term. Netflix has managed to move away from the antiquated DVD rental market into a stream-focused model with unparalleled growth potential, and has, for this and myriad other reasons, begun to spend greater sums on content creation and has come back into favor among consumers. Recent surveys have shown 40 percent of consumers either have the service or want a subscription, signaling an impressive recovery in brand equity.
The general bullish sentiment is dominant in both the short- and especially the long-terms. Fundamentals like expanding internet penetration into new markets, both in the US and abroad, as well as a continuing paradigm shift in the nature of media consumption. A recent article in Forbes states that, while the market for online media is expanding, there is even more impressive growth in the rate of consumption of streaming video. There remain short term concerns about the volatility of the stock, but these jitters can and likely will be lifted by a continuing period in sustained growth (with many pointing to the stock hitting 200 in the near-term) and increasingly clear fundamental evidence for growth potential.
Playing the NFLX lack of movement until Earnings on April 22nd 2013
The Trade: Buying the April 26th 185 Straddle and Selling the April 19th Straddle for $17.30 debit
Risk: $1730 per 1 lot
Reward: Unlimited (if front month Calls expire worthless, still long backmonth Calls)
Delta of this Trade:
Delta: Flat
Gamma: Short
Vega: Long
Theta: Long
—
Andrew Keene
President/Founder
Andrew@KeeneOnTheMarket.com