Option Trade 
Netflix, Inc. (NASDAQ:NFLX) Calls
Monday, May 18, 2015

**OPTION TRADE: Buy the NFLX Sep 2015 800.000 call (NFLX150918C00800000) at or under $5.00. Place a protective stop loss at $2.00, and a pre-determined sell at $15.00.

by Ian Harvey

May 18, 2015


Netflix, Inc. (NASDAQ: NFLX), an Internet television network, as reported in the April 15th recommendation -- which provided a200% profit -- has been one of the hottest performing stocks in the market this year….and we now have a chance to profit further from this runaway company! Besides the information from the 15th April recommendation, the following has recently occurred:-

1. The California based Netflix is investing heavily in its original programming to keep its business growing in the U.S. and to support is expansion internationally.

2. Also, Netflix is planning to be close to global by the start of 2017 when a possible partnership in China comes to fruition.

3. A rumor has surfaced due to a Bloomberg report published on Friday morning suggesting that the video streaming service was in talks with Alibaba Group Holdings Ltd (NASDAQ:BABA) in order to make a deal happen for video streaming in China.

Netflix Inc has entered talks with Wasu Media Holding a media company based in China backed by Jack Ma, as well as with other possible business partners as it looks to enter into the $5.9 billion video online market in China.

4. Netflix has been holding talks with more companies than just Wasu about forming partnerships, according to a number of people.

If NFLX enters China, it would give Netflix the broadcaster of Orange is the New Black and House of Cards, the opportunity to take advantage of, what has been forecasted as huge growth in the online television in the country of more than 1.4 billion. Estimates say the market will triple to more than 90 billion yuan before 2018, said one Internet consulting firm based in Shanghai.

A partnership locally is essential given the strict controls by the government of China over the licensing for content online. Netflix is looking for a partner that has the licenses for content across all devices including computers, tablets, set top boxes and mobile handsets, according to people with knowledge of the talks.

The regulatory agency for television had given licenses for Internet TV to seven Chinese companies of which one is Wasu.

5. Netflix Chief Content Officer Ted Sarandos is quite determined that this scenario will be forthcoming, and matter-of-factly said just that on Friday:-

“We are also aware that there are unique operating models we’ve not worked in before, we’ve not acquired companies, we’ve not worked with partners before in any of our territories, but if that’s the cost of doing business in China we will figure that out.”

6. Analysts at Apex Capital LLC recently said that the company’s stock could be worth as much as $2,000 if the firm manages to do internationally what it is already doing inside the North American market. Netflix plans to be available to an absolute majority of the global population by the end of 2016 according to Bloomberg.

According to the Gil Simon of Apex Capital LLC, the Los Gatos, California company should reach 150 million subscribers around the world by 2020. The investment advisory company said that with that many subscribers, each $1 increase in the price of the service would equate to a $20 per share move in EPS.

7. The Apex Capital 3-year target price of $2,000 on Netflix is much higher than those offered by the sell-side analysts covering the firm. The biggest Wall Street target right now is the twelve month $900 set by FBR Capital.

8. Previously, Netflix was raised to Buy from an Underperform rating at Bank of America Merrill Lynch, and the price target that was thrown up was $722 (versus a $554.90 close at the time). The firm likes the original content strength and international opportunity, with triple-A content supporting domestic and international subscriber growth. They even see international being five times that of the United States.

9. Barton Crockett, FBR Capital Markets senior analyst, weighed in on his outlook on Netflix’s earnings.

“Netflix’s business is on fire right now,” Crockett said. “I mean the consumer is loving this service. We have surveyed consumers: half or more consumers say if they had to choose, they will drop pay TV before Netflix. They spend as much or more time watching Netflix than they do pay TV. Pay TV costs $90, Netflix costs $10.”

He continued, “The rest of the world loves what we watch on TV in the United States. This is very exportable. I think China is going to love it. So, I think that these guys are going to be go vertical in earnings. I mean, each million subscribers they add drops $100 million to the bottom-line at scale and content cost which arguably [in Europe] people love this service as much.”

“They have pricing leverage, each buck drops another $750 million to the bottom line. So, I think after building up scale, you're going to see this company go vertical in earnings and you want to own that. This company is really at the forefront of the change in home entertainment. People want on-demand content, Netflix is leading that. I think there’s tons of value creation to come from them,” Crockett said.

10. Don’t be surprised to see another round of analysts upgrading NFLX stock over the coming week, although sentiment is pretty bullish already; FBR Capital sees NFLX soaring to $900 per share — 50% higher than its stock price today.

11. The company announced its first-quarter results in mid-April, which our recommendation took advantage of. Netflix’s first-quarter results were $0.38 in earnings per share (EPS) on $1.4 billion in revenue, compared to Thomson Reuters consensus estimates of $0.69 in EPS and $1.57 billion in revenue. The company gave guidance for the coming quarter of 2015 as $1.47 billion in total revenue and 2.5 million in total net subscriber additions, versus a consensus estimate of $1.66 billion in revenues.

Wall Street knows Netflix can execute when it comes to international expansion, as shown by its remarkable 64% increase in overseas Netflix members in the first quarter. Those numbers were phenomenal, and NFLX stock shot up 12% upon their release.

12. At the same time, Netflix’s massive lead over its competitors in the US, and many other markets, leaves it comfortable enough to carry out price increases. Netflix increased prices for all new customers in 2014.

Technical Details

The issue, which has been on tear since its Q1 beat for EPS and had a slight beat on revenue. This was the 12th quarter in a row the company has beaten the EPS, rallying from its July 2012 close of $56.85 to its current level.

From its April 15 close ($475.46), it leaped to $562.05 the following day and was in a $552.26 to $594 trading range until taking flight Friday.

It had reached $618.44 during Friday's trading session, to finally settle at the end $613.25, up 4.50%, or $26.40.


The Chinese online video market is obviously going to get only bigger over the years. Netflix is right to act now -- with a partner -- instead of waiting for an opportunity to come for it to go in on its own. It might be too late if it waits. $613.25 Even though the price jumped on Friday, there is certainly plenty of room for this stock to continue to run upwards.

Therefore, based on the facts above the following options trade is recommended…..

**OPTION TRADE: Buy the NFLX Sep 2015 800.000 call (NFLX150918C00800000) at or under $5.00. Place a protective stop loss at $2.00, and a pre-determined sell at $15.00.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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