Goldman put out a comment prior to earnings season, which was something that I happened to agree with. It basically pointed toward the fact that, while the VIX was overpriced relative to market movement, it didn't mean the component parts IV's were necessarily overpriced. Their main point was that it might not make sense to sell premium in individual names; in fact, they might be a buy. At the same time, SPX IV is probably still a sale. Something that might confirm the low SPX expectations are the overall flat VIX curve and the low JCJ (CBOE Correlation Index). Let's quickly break down the trade
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:
The 4th quarter of 2011 is now viewed as the quarter of "the big growth momentum earnings wreck syndrome". The big names like AAPL, NFLX and GMCR took it on the chin. So did much of the market as I recall, but I digress. At least for the first two names for this earnings cycle that is not the case in the sunny land of 2012 (no problems fixed and the credit you want). I am going to focus on NFLX for now, because I think the reason for the move is much different than AAPL’s, and there is a more interesting trade in there.