Sold NFLX Naked Put

I try to stay away from high P/E stocks due to the downside risk of margin compression, but opted to take a risk for the fat option premium on NFLX today. Part of that risk acceptance is due to the fact that I have three options expiring in three days that are far out of the money and another two set to expire in January that are a little out of the money. In other words, I have cash that needs to be put to work and since I have little risk on the table so far, I decided I could accept more downside risk. It might reduce the risks I take with other January and February puts I sell in the next couple of weeks. If I have a couple of options with better than average returns, I’m OK with the potential loss on one or two trades.

I missed out on most of the FANG gains for the past couple of years outside of an occasional AAPL naked put and decided to jump in with NFLX after I got my recent rate increase email. The news had already been out there that subscription prices were going up and the stock price has been dropping since it peaked on October 17 at $204.37. While I don’t like stocks with P/E ratios anywhere close to NFLX’s 185 (trailing) or 82 (forward), I do like growth and I see more growth from NFLX. They’ll hit a saturation point eventually, but hopefully not before my new trade expires.

While NFLX was trading at $185.70, I sold one NFLX February $175 naked put for $7.30 and received $729.31 after paying $0.69 in commission. That premium at the $175 strike means I won’t have a loss until NFLX falls below $167.71, 9.69% below NFLX’s price when I made the trade and 17.94% below its peak a couple of months ago. If I keep the full profit I’m planning on, I’ll earn a return of 4.35%, 23.56% annualized.

You can find my YouTube option trade video here.



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