Shorting Netflix

I have a lot of respect for Whitney Tilson and the transparency in his seeking alpha article on Netflix. It was also great to see Netflix response to this. I agree with Whitney on the points that he has raised, but it would appear that he may have mistimed this. Probably as much as the LULU shorts have mis-timed this short.

Im not going to repeat Whitney's article, you can read it here. You can also see the response from Netflix here.

There are a few key reasons I'm looking to short pre earnings

1. Google and Apple reporting great earnings got bashed in the market
2. Netflix will find it difficult for international expansion and on this fact alone the PE cannot be justified.
3. Apple and Google have hoards of cash and a loyal customer base. I doubt they will stand by and watch this potential market being taken over by a small player.

My only concern here would be a potential buyout by one of the cash rich player. The relationships that Netflix has created has significant value to a bigger player. But I'm not sure this is valued at $9bn. It would be cheaper for the acquirer to write a cheque of $1bn to each of the film studio than to acquire Netflix.

In order to ensure management of this trade, the exposure is going to be split as follow's

		Max Exposure
	Shares	1000
210.79			Exit
200.75	9.56	200,754.23
191.19	9.10	191,194.50
182.09		182,090.00
172.99	-9.10	172,985.50
164.34	-8.65	164,336.23
156.12	-8.22	156,119.41
148.31			Exit

Maximum Loss – Short Positions
20.00%		200	182.09	36,418
30.00%		300	191.19	57,358
30.00%		300	200.75	60,226
		Average	192.50	154,003
Exit		800	210.79	168,632
Maximum Loss				14,629

Maximum Profit – Short Positions
20.00%		200	182.09	36,418
30.00%		300	172.99	51,896
30.00%		300	164.34	49,301
20.00%		200	156.12	31,224
		Average	168.88	168,838
Exit		1000	148.31	148,313
Maximum Profit				20,525