$10,000 Portfolio Update: Netflix Earnings Disaster Edition

by: Rocco Pendola

As my $10,000 portfolio doubled, I decided not to play it safe by closing things up. Instead, I introduced the somewhat nerve-racking proposition of sticking with my long-term sentiment on the stocks that brought me all of my gains despite the near-term risks associated with being bullish Apple (NASDAQ:AAPL) and Amazon.com (NASDAQ:AMZN) and bearish Sirius XM (NASDAQ:SIRI), Research in Motion (RIMM) and Netflix (NASDAQ:NFLX).

To make it interesting, I entered trades on each of those names and committed to staying in each one until the company in question released its next earnings report. As my update after Apple's earnings explains, Apple's relatively soft quarter did not surprise me, therefore I continue to hold that position as the stock attempts to reestablish itself above $400.

In this article, I update the status of each trade below. After the table, I update my, suddenly, very profitable NFLX March 2012 $80 put. After the earnings disaster, do I free up some cash to buy more, sell or hold?

Option Quantity Entry Price Midpoint Price, Tuesday After Open Profit/Loss
AAPL April 2012 $450 call 1 $19.18 $19.70 + $52
AMZN April 2012 $220 call 1 $30.00 $35.88 + $588
NFLX March 2012 $80 put 6 $7.08 $17.20 + $6,072
RIMM March 2012 $20 put 15 $2.50 $2.23 - $405
SIRI March 2012 $3 put 25 $1.58 $1.22 - $900
PowerShares QQQ ETF Trust (NASDAQ:QQQ) March 2012 $50 call 1 $6.68 $9.49 + $281
TOTAL + $5,688

If you're looking for some Netflix earnings post-mortems, Seeking Alpha published and continues to publish quite a few good ones. I offered up a couple yesterday:

Netflix Earnings Disaster, Calling The Short Of The Century

Netflix: Arrogance Alongside Apologies

And this morning, fellow Seeking Alpha contributor Liqddynamite offered up an even better one, Why The Netflix Death Spiral Is Imminent. The takeaway is salient to investors and non-investors alike: Enjoy the beaten stock, NFLX, and the service, Netflix, while you can because, sooner rather than later, both will be going away.

While I think NFLX has quite a bit more downside left in it, given the potential for losses on my remaining trades I think I would be insane not to take profits here. So, I did, selling out of my NFLX March 2012 $80 puts at $17.20 each for a gain of $6,072. That brings the total value of the $10,000 portfolio to $23,245. And it gives me a little bit of cash to, eventually, make more trades.

I still believe AMZN, which reports after Tuesday's close, could report a soft quarter, sort of like AAPL. However, I fully expect the stock to recover on a blowout holiday quarter, if not sooner. Good numbers aside, AMZN could stem any downside from Tuesday's earnings by reporting strong Kindle Fire pre-sales.

While I had considered hedging my AMZN call heading into the report, I will stand pat instead. Given the April expiration and my long-term bullish sentiment, I think AMZN will do exactly what AAPL did after it pulled back, although maybe not as quickly. And, again, this is just me "disaster" planning. I don't expect the stock to fall after the Q3 numbers, but it would not shock me if it happened.

The plan for the $10,000 portfolio going forward is to deal with each company's earnings report as it comes and to continue making trades. It has been a good run so I am not going to make any bold predictions about where I will take this thing.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in NFLX over the next 72 hours.