Shorting Netflix? Read This First

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Shares of Netflix, Inc. NFLX have been on a roll since the past six months, up by over 72 percent. Needless to say, those who bought the stock at the right time are laughing their way to the bank. However, for some like Boris Schlossberg of BK Asset Management, who shorted the stock purely based on valuation the story, was quite different.

 

Schlossberg was on CNBC to discuss his Netflix short that went wrong and when he thinks will be the appropriate time to short the stock again.

 

The Short: A Painful Experience

 

“Having covered my shorts a couple of weeks ago, I am happily actually at this point because the stock has already soared since that point,” Schlossberg said. “A very painful experience and, I think, the key takeaway here is that you can never ever, ever short a stock on pure valuation concerns alone. You really need to see some kind of a negative catalyst.”

 

He continued, “So, with Netflix what I think really is going to need to happen is a miss of sequential revenue or a miss of sequential subscriptions. Something that could really blow the stock up 20 percent in a day and at that point, that’s when it’s going to become a really good short because at that point a lot of the air is going to come out of the [company].”

 

Wait Till Negative News Hits

 

Schlossberg was asked that wouldn’t traders miss the bus if they wait for the company to report revenue miss and the stock witnesses a big drop. He replied, “My point is wait until it does go wrong because at the point of where it goes wrong, when everybody thinks all the news is baked into the stock, that’s when these big high-flyers actually deflate much more than you think.”

“You will miss the initial drop, but you will be much safer and much better off by following on after the negative news hits.”

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Posted In: CNBCMedia
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