Speculators Only: Add NFLX Calls

PLAY: Buy the NFLX February 52.50 Calls (QNQ BQ) at or under $2.30, good for the day. Place a protective stop limit at $1.40 and a sniper sell at $6.00.

Dear Bottarelli Research Member,

In addition to earnings news tomorrow from SanDisk (SNDK – NASDAQ) and Green Mountain (GMCR – NASDAQ), we also have Netflix.com (NFLX – NASDAQ) scheduled to report. While the options pricing is not ideal for a call/put combo, the makeup of the chart does lend itself to taking a directional bias and hoping that the earnings release goes our way. As you can see, the stock could easily jump to $55.00 on a strong earnings response tomorrow. Therefore, let’s roll the dice and get positioned for good numbers.

As a play for speculators only, here’s the trade…

PLAY: Buy the NFLX February 52.50 Calls (QNQ BQ) at or under $2.30, good for the day. Place a protective stop limit at $1.40 and a sniper sell at $6.00.

At the same time, maintain your GMCR February 85 Calls (QGM BQ) going into tomorrow’s earnings as well. Since we didn’t see a pre-earnings run-up, let’s see if GMCR can impress Wall Street with good numbers, and lift our calls into the profit zone. Hold.

And now, an important trading note…

TRADING NOTE: In case you haven’t heard, a major change to options symbols will take place on February 1^st, 2010, and will affect the display and format for all U.S. Equity and Index Options. This change was mandated by the Options Price Reporting Authority (OPRA), which means that it’s an industry-wide event. The purpose of this change is to more effectively manage the option root and strike price codes. For example, as more and more companies merge, split, or spin off into new companies, the major options exchanges find themselves scrambling to list updated options codes while also facilitating easy and liquid trading. Since these events occur in the middle of a trading session, the complications become incredibly troublesome for the exchanges and frustrating for the options holders.

To be honest, this change does not look to be more beneficial for individual traders like you and me. In my view, it looks to be something that’ll only help the exchanges. But at any rate, we have to deal with it. Some brokers have already moved into using the new symbols before the February 1^st changeover date. But to maintain consistency, I will continue using the “old” symbols until everything officially changes over next Monday.

Now, in an attempt to keep you updated on this change, here is a run-down of what it’ll mean…

Current Symbol Formats: There are two formats currently being used for options data. The “short form” uses an option root symbol and special month and strike price codes. For example, MSQ DE. The “long form” uses an option root code, but instead of codes, the month and strike prices are spelled out. For example, MSQ APR25C.

New Symbol Format: Starting next month, the new format for options will use the full underlying symbol, a two-digit year code, the combined put/call and month code (refer to the list below), and then the full strike price spelled out to the hundredths. The format will read like this:

[Underlying Symbol] [Two-Digit Year][Put/Call and Expiration Month Code][Strike Price]

For example, an IBM July 100 Put would be: IBM 10S100.00

The “10” represents a 2010 option, and the “S” represents a July Put (taken from the list below). The 100.00 represents the strike price. We’ll need to get used to this new format. The biggest challenge, in my view, will be applying the new symbols from the chart below into the options codes. As always, I’ll do my best to keep you fully informed on how to place these orders. Feel free to print this list out and use it as a reference going forward.

In addition, you might also see an optional regional ID code and an exchange day identifier, used for quarterly, weekly or any other expiry other than the third Saturday of each month. At this time, I do not plan on trading these alternative option expirations. But just so you’re aware (and do not mistakenly buy one of these contracts), the format for these symbols will be:

[Underlying Symbol] [Two-Digit Year][Put/Call and Expiration Month Code][Strike Price][Day Identifier][=Regional Exchange ID]

For example, DIA March 30, 2010 74.00 Calls with quarterly expiration traded on the Boston exchange would be: DIA 10F74.00D30=B

Yes, that looks a lot more confusing to what we’re used to. But as I said, I’ll do my best to keep you fully informed on these new symbols. Luckily, we don’t plan to trade the options with various expiration dates, which should eliminate some added confusion.

NOTE: From what I’m hearing with most quote providers, this conversion process is not automatic. Therefore, you’ll need to enter in your symbols manually to correspond with the new format. For assistance, do not hesitate to contact your broker for help with these new symbols. Below, you’ll find the chart that will be used for all the new options symbols.

Going forward, I hope this helps prepare you for the transition.

And as always…

Lock and load!

Sincerely,