Wednesday, August 11, 2010

Hey Blockbuster, Eat My Dust...

... Love, Netflix.

Normally I don't get caught up in all the fundamental mumbo jumbo as it usually only takes me three minutes of looking at a balance sheet before I start to doze off. Charts, volatility, and market sentiment are more in my wheelhouse. But, I'd be lying if I said I haven't developed a great deal of curiosity with NFLX and it's veritable take-over of the movie rental industry. All it takes is one look at their stock chart to determine they've got some major mojo going on.

In a long line of goodies for the bulls, NFLX has delivered yet again:
Netflix Inc.has announced a deal, reportedly worth $1 billion, to bulk up its increasingly popular Internet streaming service with Hollywood blockbusters such as "Star Trek," "The Curious Case of Benjamin Button" and "The Godfather."

"What's exciting here is it really reaffirms that the Internet is a serious delivery channel," said analyst Colin Dixon, a senior partner for the research firm the Diffusion Group. Netflix has really been the catalyzing force on the market and it has illustrated very graphically that consumers are very comfortable consuming quality content directly from the Internet and in some respects, it's their preferred medium."

Published reports on Tuesday said the deal between Netflix, the Los Gatos firm that has built its business mailing rented DVDs to its subscribers, and Epix, a pay-TV service that is a joint venture between MGM, Lionsgate and Viacom Inc.'s Paramount, is worth $1 billion in licensing fees over the next five years.
One would have thought with the poor reaction to their quarterly earnings announcement on July 22nd, it may have been time for NFLX to pay the piper for their 400% gain over the past two years. Well, not so much. The good times continue to roll.

As is typically the case post earnings, implied vol may have put in a cyclical bottom last week making options a tempting buy. Due to yesterday's news and no doubt an uptick in demand for options we have seen vol pick up a bit.

[Source: Livevol Pro]
For related posts, readers can check out:
The Cycle of Implied Volatility