Weekly Issue: Pull Back in Netflix Shares Offers and an Opportunity for Call Position
Key points inside this issue:
- We are adding the Netflix (NFLX) Jan 2019 400.00 (NFLX190118C00400000) calls that closed last night at 17.00 to the Options+ Select List with a Buy rating. We’re holding off with a stop loss level, for now, subscribers should not chase these calls above 25.00.
- We will continue to hold the Costco Wholesale (COST) January 2019 230.00 (COST190118C00230000) calls that close last night at 8.40, and instill a stop-loss for the position at 6.60.
- We continue to have a Buy rating on Dycom (DY) December 2018 110.00 calls (DY181221C00110000)that closed last night at 4.00.
A few weeks ago, we added shares of Netflix (NFLX) to the Tematica Investing Select List as the pole position play for our newly christened Digital Lifestyle investing theme. Since then, the shares have come under pressure following what some saw as a disappointing June quarter earnings report, even though the company continued to add more than 25 million net new paid subscribers year over year. As more proprietary content from Netflix geared toward more countries rolls out in the coming months and as more consumers look to cut the cord, Netflix and its increasing content library remain very well positioned in my view.
Historically speaking, the company’s business has been favorably skewed toward the second half of the year. That seasonality, combined with the recent more than 12% pullback in the shares has me adding the Netflix (NFLX) Jan 2019 400.00 (NFLX190118C00400000) calls that closed last night at 17.00 to the Options+ Select List. For now, I’ll hold off adding a stop loss to the position as I intend to use any late summer weakness to improve the position’s cost basis. On the flip-side, subscribers should not chase these calls above 25.00.
- We are adding the Netflix (NFLX) Jan 2019 400.00 (NFLX190118C00400000) calls that closed last night at 17.00 to the Options+ Select List with a Buy rating. We’re holding off with a stop loss level, for now, subscribers should not chase these calls above 25.00.
Costco calls move higher, and we’re adding a stop loss to limit downside risk
Last week we added a call position on Middle-Class Squeeze company Costco Wholesale (COST). As those COST shares have continued to climb over the last week and our January 2019 $230 calls have soared in response. As of last night’s close, those calls finished up at 8.40, up more than 27%. As Costco wins additional bullish investors and analysts, and the company continues to win consumer wallet share and open additional warehouse locations, I continue to see more upside in both COST shares and our call position here at Tematica Options+.
As bullish as I am on these securities, we need to keep in mind potential downside and that has me instilling a stop loss for our COST calls at 6.60, which is the same as our initial buy-in. Worst case, should we get stopped out, we’ll have a de minimus loss, but as we head into the seasonally strong spending season that is the second half of the year, I suspect that stop-out probability to be low.
- We will continue to hold the Costco Wholesale (COST) January 2019 230.00 (COST190118C00230000) calls that close last night at 8.40 and instill a stop-loss for the position at 6.60.
Remaining patient with our Dycom calls
While we’ve seen little movement in the calls for Dycom Industries (DY), the specialty telecom contractor that counts AT&T (T) and Verizon (VZ) as well a Comcast (CMCSA) as core customers, I remain bullish given the positive commentary from mobile infrastructure companies Ericsson (ERIC) and Nokia (NOK) as well as network spending commentary from AT&T and Verizon on during their respective June quarter earnings conference calls.
The key here will be to remain patient with the rollout of 5G spending over the coming months and our Dycom calls, but with Motorola already announcing the first 5G capable smartphone and T-Mobile (TMUS) inking a multi-billion 5G contract with Nokia it looks to me that 5G will soon go from a slow boil to a roiling one in the coming months. Let’s remember that 5G devices can’t connect to a network that isn’t built.
- We continue to have a Buy rating on Dycom (DY) December 2018 110.00 calls (DY181221C00110000)that closed last night at 4.00.
