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Consider shorting Netflix...

Written By Brian Hicks

Posted December 28, 2007

It’s not often that I’ll recommend an options position in this blog, but I have no other outlet… well, not yet. That’ll change when we enter the New Year, though. For now, I wanted to pass this trading idea on to you through your free blog, “The Trader’s Pit.”

We’re anticipating a Netflix (NFLX:NASDAQ) drop to about $23 after making a pass above its upper Bollinger Band this week. Sadly, after a 60% run off September 2007 lows, the end may be nigh for the mail order DVD company’s rally.

Sure, Citigroup just upgraded the stock from a Sell to a Hold, arguing that Blockbuster’s price increases could benefit Netflix. And sure Credit Suisse upped its estimates on the stock. But to be honest, I could care less what the big banks say or think. Do I have to remind them of their pitiful housing and subprime calls of 2007?

Unfortunately for NFLX, news is out that Apple is joining Fox to rent digital movie downloads through iTunes, meaning the competition is growing fiercer for NFLX. Seeing how well Apple has changed the face of digital music, it won’t come as a shock when they reinvent the face of the home movie business… at the expense of Blockbuster and Netflix.

If you’re game, we’d suggest buying the Netflix (NFLX) March 2008 25 puts (QNQOE).