martinkay's  Instablog

One of the stocks that everyone is talking about right now is Netflix, with the prices rising more than 40% and everyone joining the buying frenzy. Regular traders should contemplate the option of shorting Netflix but it is the binary options traders that are at the forefront of making money right now. Trade reversals are quite often and buying put options on stocks that are doing great but don't look that great on medium-long term, is an excellent way of increasing the profit margin.

Netflix exceeds expectations

Before thinking about an imminent downfall, it is vital to understand the mechanics behind the sudden surge in stock prices. For starters, Netflix announced much better results than expected for the forth quarter and this triggered the buying frenzy. The good news is that the number of domestic streaming subscribers has increased by 2 million and the number of DVD sold is still at the expected level.

The problem is that the international sales have plummeted and this is not an unexpected dip, but rather a downward spiral that Netflix seems incapable of stopping. The figures are encouraging, but the DVD sales are actually decreasing and what makes it worse is that this is an irreversible trend. Despite the fact that the company offers the best service in the world for this niche, the industry is simply dying out and no matter what they do, they won't be able to resuscitate it.

What goes up, eventually comes down

From a technical perspective, binary options traders are right to buy put options because all the indicators, including the RSI, suggest that Netflix is greatly overbought. You don't actually need indicators to realize that, with the prices soaring from an all time low of $55 in September to $165. Short and medium term options have a great chance of proving profitable, because the unbridled enthusiasm is not going to last. When it dwindles and traders stop buying just because everyone else does it, the prices will come down.

The forecast for 2013 is even more frightening for Netflix, who is facing serious competition and can't expect to improve at the same rate. Amazon, Hulu, Apple or Crackle are all interested in getting a slice of the cake and they are well past the thinking phase, with all these companies already involved. Netflix has hit its climax and as their DVD sales decrease and international loses mount, another crash is imminent.