“Fading the bid” has been a popular move for investors in recent weeks, Don Kaufman, the founder of TheoTrade, told Schwab Network recently. Kaufman suggested an options play that bets on a fade by widely traded Netflix (NFLX) stock.
Kaufman Views on NFLX
“Netflix is breaking towards its all-time high, and that is usually the best place to short a stock,” Kaufman said.
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According to the longtime trader, NFLX is undergoing “a gamma squeeze.” The latter phenomenon occurs when traders buy many calls on a name, forcing market makers to buy the stock and creating a positive, cyclical rally, Kaufman explained.
Kaufman thinks that the cycle will eventually end, creating a “wild” downturn by NFLX. Additionally, he believes that, if a recession begins in the U.S., NFLX’s business model will take a significant hit.
Kaufman’s Bearish Options Play on NFLX
The trader is buying $1,000 puts on NFLX that expire on July 18 and selling $990 puts that expire on the same day. He is paying net premiums of $2.90.
Those who utilize this options play will benefit significantly if NFLX drops, Kaufman said.
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This article is originally published at Insider Monkey.
