Buy Netflix Bullish Options, Sell Puts on Competitive Gains, JPMorgan Says

Investors should buy bullish Netflix Inc. options while selling bearish ones because the movie subscription service’s technology makes it more profitable than rivals, JPMorgan Chase & Co. said.

Equity derivatives strategists Amyn Bharwani and Marko Kolanovic recommended buying September $120 calls while selling September $110 puts. The trade, known as a risk reversal, profits if Netflix shares are above $125.15 when the contracts expire in three months, the strategists wrote in a report before the open of U.S. exchanges. The shares climbed 5.1 percent, the most in a month, to close at $123.29 in New York.

The strategists cited JPMorgan stock analyst Imran Khan, who raised his share-price forecast to $133 on June 9 and boosted his estimates for earnings and subscriber growth. He maintained his “overweight” rating on the shares. Netflix, based in Los Gatos, California, is poised to benefit as consumers buy more devices to watch movies over the Internet and video rental stores close, putting $1 billion in revenue “up for grabs.”

“The company’s unique technology and reach allow it to monetize content in ways competitors can’t,” Khan wrote. “We think downside in the stock is limited.”

Neflix competes against Seattle-based Amazon.com Inc. and Apple Inc. in Cupertino, California.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.

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