The FCC ruling came in as a huge sigh of relief for Netflix Inc. (NASDAQ:NFLX), which relies heavily on internet speeds but the company could have another problem on its hands according to CNBC’s Michael Khouw. During an interview on CNBC, Khouw questioned whether the amount of fees that studios charge could come to haunt he giant streaming network, despite starting to produce its own content.
“The big issue for them always has been concerns about rising licensing costs because we remember when they started to purchase content. They had some very attractive deals everyone was concerned what is going to happen when they start paying the kind of rates that the studios are going to end up charging. They have mitigated that considerably by creating their own programming,” sad Mr. Khouw
Creating successful content is not always that easy according to Khouw, a front that Netflix, Inc. (NASDAQ:NFLX) may struggle quite a bit as there are more players in the space. It remains to be seen how the streaming giant plans to replicate the same success experienced withHouse of cards, with the production of more content going forward.
Khouw is also taking issue with the fact that Netflix, Inc. (NASDAQ:NFLX) stock is priced as if they are always going to get it right on the creation of successful content like House of Cards. However, the analyst admits it has always been difficult to short the stock based on valuation at the back of a 10% short interest.
Netflix, Inc. (NASDAQ:NFLX) stock is closing in on its all-time highs in the market that Khouw believes justifies the idea of lining more towards the short side going forward
“I think the way to do this is actually look at selling upside calls spreads; names like this the downside puts are quite expensive. Instead, we are going to look at April we are going to sell the $485-$505 calls spread. You could sell the $485 for about $$19.50 and then buy the $505 spreads for about $12 you are going to collect about $7.50. If the stock sits here you are going to collect that money if it goes down, you are going to collect that money […],” said Mr. Khouw.
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