Netflix Still in Play as it Explodes Higher

Don't look now but beaten-down Netflix (NASDAQ: NFLX ) is starting to
percolate. The momentum rock star of days past is up a fast 33% since ringing in
the New Year. The two-week, high-volume run has propelled the popular media
company back above the pivotal 50-day moving average, making it the
fastest-growing stock of 2012 so far. If this is a bona fide trend reversal,
even-higher prices should be in the offing. With the stock trading in the $92
area, premiums on the at- and in-the-money strike prices can be a bit steep. If
you're looking for a cheaper avenue to acquire bullish exposure, buying a
February bull-call spread offers a limited-risk, limited-reward profile that
could generate high percentage returns if NFLX rises as forecast. To enter the
position, you can "buy to open" the NFLX Feb 90 Calls while simultaneously
"selling to open" the NFLX Feb 100 Calls for a net debit around $4.20. When
attempting to purchase a call spread for $4.20, it doesn't matter how much
premium is paid for the long option or received from the short option, provided
the net debit doesn't exceed $4.20. The long Feb 90 Calls are trading around
$11 right now, so selling the $100 calls dramatically reduces your risk and lets
you play this higher-dollar stock with fewer of your own dollars on the table.
The maximum risk for the call spread is limited to the initial $420 ($4.20 x
100) paid at trade inception, and the max reward is limited to the distance
between strikes ($100 $90) minus the net debit, or $580 per contract. NFLX is
slated to report earnings on Jan. 25, so traders unwilling to roll the dice on
earnings should exit their positions beforehand. Source :