Don't Bet Against the Straddle

At 3:35 EDT time today I did a hit for Bloomberg TV's 3 vs Trish segment (Adam Johnson was filling in).  In it, I explained how I thought NFLX was no longer the most hated stock in the world, and it also wasn't 300.00 any more.  My conclusion, the IV was overpriced, and a selling plan made sense.  It was on this hypothosis that I decided that it made sense to be long NFLX via the 95/90 PS.

Clearly, I was wrong, take a look at the closing price and the current after hourse price:

My hypothosis was clearly wrong.  The stock made a nice 15.00 point drop from its 102 close and is now trading around 87 dollars.  Option traders, I should know better.  The market was telling me that this stock was going to move by about 15 dollars all day, in that, the straddle price held constant.  

At the close the 100/105 strangle closed at around 13.45, add in the 2.00 for the stock to get even to the strangle, and the strangle price was predicting this kind of move.  One could make an arguement for the straddle being overpriced, if there had been ANY pressure on the straddle to sell off through out the day.  There wasn't from the time I started watching the strangle itself, around 11 AM this morning, until the close the strangle priced between 15-15.50.  I should have known better; thus, take this lesson from me:  DON"T BET AGAINST THE STRADDLE!  

Otherwise, you might end up being very wrong on national TV (I'll get the video for you guys as soon as it posts, so you can poke fun at my expense).

The Trade:

I like NFLX to get a dead cat bounce later in the week, not tomorrow.

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