*added sountrack, play while you read*
*Netflix is pushing 180 four days after this was first posted.*
*1/31/2011 update. I sold the 2nd half of my position at 208. I’m pretty happy with the way it turned out. 🙂 *
Thursday morning, I sat down in my slightly depressing gray cubical and logged in. What do I see?
Netflix is up 20 points!!!
Urghhhh!!! I guess I should be happy, but….
Lighting flashed though my head – this sucker is going to drop 20 points tomorrow, I gotta hedge my bets and figure out how options work RIGHT NOW and put in an order!
Am I over exclamating? I was all hopped up on adrenalin.
Logged on to my broker site and found the option tab. Tried to put in an order and I saw this message – you need to enable option trading on your account. OOoooKKkkkk, fine more time for me to figure out options. Found the option trading form, fill it out tonight, fax it in.
Back to figuring out what to do with NFLX. I really want to keep the stock because I think it will go up in the long term, but the PE ratio is 70!! This is getting close to the dot-com bubble territory.
My stock investment strategy is buy and hold. I know this is not always optimal and I always have separation anxiety especially if I held it less than one year. I just can’t bear to sell a stock and pay the 28% short term capital gain tax.
So I IM’ed my buddy Al and he replied- “just sell it. You just have to pay the tax…”
Left to myself, I probably would have held NFLX and stewed all day, but with Al’s advice I got the calculator out.
Purchased NFLX on Jan ’09 at $52 per share.
If I sell at 172 (for simplicity’s sake) I would make a profit of $12,000.
Short term capital gain tax at 28% would be around $3,400!
Holy moly, NFLX would have to drop to 34 points for me to lose that much. What to do, what to do?
Compromise – I sold 50 shares, took the gain and pay the tax.
> I get to keep 50 shares of the stock I like
> I took some profit that I can use to diversify my portfolio and reduce risk exposure
> Send some money to my emergency fund which was a little low
> Sleep a bit better tonight
lesson of the day
> enable option trading on my account so I don’t have to agonize over the selling. Find out as much as I can about how to buy put options to hedge my gain.
> Thanks Al! You are a wise and handsome man. 😀
Investors, what would you do if you were in my shoes? I am not very familiar with option trading; can you tell me what could go wrong if I buy a put option with the strike price of 150?