Why This Options Trader Is Short Netflix

Phil Davis of Phil's Stock World was a guest on Wednesday's edition of Benzinga's #PreMarket Prep to discuss various hot topics, including

– a stock which he is short for the simple reason that it has a high P/E ratio. "Netflix has a P/E of 300," Davis said. "It's trading at 300 times earnings." If that wasn't reason enough, Davis continued that Netflix's plan is to become a hybrid combination of

and HBO by producing their own shares and operating their own network. Meanwhile, Time Warner is trading at a P/E ratio of around 19 and is already an international company. In fact, he added: "everything Netflix dreams about, Time Warner has been doing for 20-30 years." Time Warner already operates in 150 countries and boasts 200 million subscribers internationally while also operating its own production studio along with various movie deals. As such, he finds it absurd that the valuation of a "mature" company is more than one twentieth of Netflix's valuation. From an option perspective, Davis stated he has been selling call options in Netflix. However, he hinted it was an acceptable trade from a risk reward perspective at the $130 level (from his personal point of view) but still admitted it was "dangerous" and certainly not recommended for the average trader and investor. He further pointed out an investor can sell the October $125 call option chain for $10. So long as the stock stays below the $130 mark, the trade will remain profitable by at least $5.