Covered Calls: Netflix (NFLX)
The granddaddy of momentum stocks without supporting fundamentals is probably Netflix, Inc. (NASDAQ:NFLX). I see no justification for NFLX to have a $68 billion market capitalization.
It is burning cash at a rate of $1 billion a year or more. It barely has a profit. It keeps having to issue debt to fund its programming. I love Netflix as a product, but as a stock, it’s just nuts to own it. You have to be careful with NFLX stock. The market is over the moon about it these days, but that love affair could end in a heartbeat.
Still, investors have bid it up to $159 per share as of Wednesday’s close. The 15 Dec $160 covered calls have a very generous premium of $14.50 per contract. You pick up $1,450 per contract, which is a 9% return, better than the other previous ideas.
Frankly, you’ll need all the downside protection you can get if you insist on holding NFLX stock.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.