Monday, December 13, 2010

What Does Netflix (NFLX) and a County Fair Have in Common?

If you like volatility, if you like high risk, if you like to stay awake at night, have I got a stock for you! Netflix (symbol NFLX) is being day traded and driven radically both up and down in price. Seems like you can't go more than a day before NFLX changes direction and moves 5 - 10%! Now THAT'S some volatility!

Here's the thing about NFLX - they have a great idea, a great product and some really great management. But what they also have is a very high profile and an investment community with very little understanding as to just WHAT NFLX metrics are and should be. Do you fully understand their revenue model? I think that I do, sort of, but do I REALLY know it like I do the airlines? Nope. Not a chance. Way too many opinions out there and it's all speculation.

Here's the thing that concerns me about TRADING NFLX... it doesn't seem to really want to trend. Oh it did for quite a while and that was a great ride, but now it is being day and swing traded. Most likely will continue to do so for quite some time. NFLX's price action reminds me of the "scrambler" ride at those wonderful county fairs... Question is, can you ride it without getting slightly ill? No? me either. So for me, for now, NFLX is strictly a WAY out of the money type trade (like a bull put that is structured about $50.00 out of the money!)

Jeff McAllister