NFLX Update

So far I have a partial open equity short (under construction) in NFLX that's at a profit and just closed some May 18th $220 Puts that were are also in the green (slightly).

At the fill of $13, these came to a 4.8% gain, which stinks, but not feeling very strongly about them (short term) I'd rather take that than a loss.

I want to obviously build out the equity short (and think we can) and catch momentum wherever it's possible, so looking at NFLX that has dropped a bit out of the range today that we were waiting for (to buy puts), maybe it fills the gap, I really don't have a firm line on this one as the market looks mushy everywhere today, thus if I can't point to objective data showing a strong reason to hold the puts, I have no choice but to close them.

The equity short is a different story, it can hand in there with very little draw down and I do think we get a chance to build the NFLX equity short position out at better prices, the equity position doesn't have time decay hanging over it or the leverage.

Here are the charts as of just before I posted the "Closing of the position".

 The daily chart of NFLX, the yellow areas are gaps, over the last few years the market has become very efficient at filling gaps, I suspect HFYs are behind it, but it kind of stinks for us as break-away and exhaustion gaps are very valuable signals and now most get filled, even if they were legitimate.

The red trendline to the right is VERY OBVIOUS resistance so you know that is going to be taken out just for head-fake's sake, but I still think we have a decent shot at filling out or establishing new NFLX positions around or maybe above the top gap from 2011.

 From a long term and important daily chart, you see distribution and where there was accumulation, the first round ran up and gave out, we are in the second round now which is seeing distribution in to higher prices, but in my view has more upside it can push based on the size of the accumulation zone (we are not talking about a 1 day affair here, this could be days/weeks).

The more detailed 15 min chart shows the strong distribution in to higher prices, Wall St. doesn't start or close a position at 1 price like we do with our smaller trading size, they have to sell in to strength so their final price is an average of higher prices, they have no choice, many times their positions are larger than some stocks' total daily volume, try selling that in a day and see what happens-you lose a cushy management job within 30 minutes and are never hired at any financial firm again (not even the local Scottrade broker). This is the fact that most retail traders don't understand or never bothered to think about, they think a volume spike is smart money buying or selling, ARE YOU KIDDING ME, YOU THINK THEY'RE GOING TO ANNOUNCE THEIR POSITION TO THE WORLD, LIKE THAT KNIT-WIT BILL ACKMAN DID ONLY TO SEE CARL ICAHN COME IN AND BUY MOST OF THE AVAILABLE FLOAT SO ACKMAN COULDN'T FIND THE SHARES TO COVER HIS SHORT? WHAT AN IDIOT!

In any case, you don't get in to a screaming match with Icahn on CNBC and expect to get away with it.

So we do have distribution in to higher prices, but as I mentioned above, it's a longer process than just that and when retail sees a volume spike and thinks it's smart money moving, they have no idea, smart money very quietly carved out their position months before when no one was paying any attention to the stock. In fact, a dead giveaway is a very flat trading range and very low volume, smart money has other problems in the form of HFT's that are "Iceberg hunters", they ping the market looking for large smart money orders which they only find the tip of, like an iceberg, but you know the main part of an iceberg is out of sight, once they identify a smart money iceberg (a smaller position or group of them being executed to fill a larger order), the predatory HFTs front run smart money and make them really pay up for the order, the HFTs make a bundle doing that.

 NFLX 5 min, more detail, shows the accumulation areas at that range we wanted to short once it broke out, it did and there was initial distribution (around the area we bought the puts), but since has been showing a short term (smaller) positive divergence and especially in to today's drop, which is what really got me worried about the NFLX put, it looks like lower prices are being accumulated very short term with the intention of pushing NFLX up so they can have another round to sell in to higher prices and demand.

The 3 min intraday chart shows the same.

As does even the 1 min chart. Here's where it's sticky because it's very hard to tell whether NFLX has more intraday downside , so far that has been answered as it heads higher, the point being was I had information that short term NFLX looks to head higher, which is great for setting new shorts, but with no hard evidence suggesting a strong probability of more short term downside, I had no choice but to close it.

Here's NFLX now, so I think that was the right decision.

1 min.

We'll keep watching it for any momentum plays, but more importantly for the larger, higher probability trade set up.