As most of us know, shares of NFLX stock have been and probably will remain about as volatile as hot penny stocks. Recently, Netflix has been one of those names that has a ton of smart money on both sides of the trade. For instance Jim Cramer, the the shares are ridiculously cheap and all star Morgan Keegan analyst Justin Patterson is extremely bearish. Well so far, the bulls have been right. Except for a few pullbacks, NFLX stock has basically gone straight up for the last year and a half. It’s last run to the highs came after Goldman Sachs raised its target and shorts were squeezed.
From the short perspective you have to ask yourself one old market question. Can you stay solvent longer than NFLX stock can remain irrational. Now many NFLX bears feel $80 or $90 is a fair price for these shares. That type of downside move is enormous. These types of percentage moves are often only seen in the best penny stocks. To give you an example of how crazy this run has been, hedge fund titan Whitney Tilson was even a victim of the short squeeze a while back. Covering his position at a substantial loss. This is why we preach that no matter how positive you are about a position, you always have to cut you losses as short as possible.
This is why many bears prefer to play some of these lower market, high beta stocks with put options versus shorting them. While time is often against you with options and most expire worthless, you can only lose what you put in. On the straight short play, the loss is infinite in theory, but you can stay in as long as margin is sufficiently met.
Now remember for every NFLX stock bull that says this pullback is just earnings profit taking there is a bear who thinks the shares are worth under $100. In my opinion I think being flat and on the sidelines is the best way to play NFLX stock.
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