Buy Alert: November 9, 2012

Marcus Haber | November 9, 2012

Buy Alert: November 9, 2012

Trade Details

Buy Netflix (NFLX) December 2012 $62.50 Puts for $1.50 or better

Why?

NFLX recently got a nice boost on news of investment guru Carl Icahn taking a 10% stake in the company. But keep in mind, Icahn buys a company for long-term value. In the short-term, the stock is going to be volatile. You see, the board of directors will likely fight Icahn gaining too much power over the company. This could create some serious friction… and scare away investors.

What’s more, NFLX is facing intense competition from companies like Amazon (AMZN). As competitors announce new and better deals with the holiday season approaching, NFLX will continue to face downward pressure on its share price.

Finally, I’ve been leaning heavily on calls recently since that’s where the opportunity has been. However, it’s time to get some downside exposure in our portfolio (using puts) with all the volatility we’re seeing in the financial markets. If stocks take a turn for the worse, typical big movers like NFLX are sure to go with it.

Let’s grab some OTM puts in NFLX. I expect the shares to head back towards the 50-day moving average. I also don’t anticipate the shares being able to break the 200-day resistance level.