Netflix Inc. is a multinational dealer of on-demand media streamed via the internet. Most of these services are available to the viewers within Australia, North and South America, New Zealand, USA, other parts in the Middle-East. In the current year, this company stock value increased by 1.46% after rising from $286.13 to $290.30. Further, the volume of the stock has been increasing against the price and effort that indicates a positive technical signal in the stock market. This has come along with trading more than 2.61 million shares daily while an average of 15 million shares is bought and sold for approximately $4079 million.
According to the Bollinger Band, Netflix stocks volatile or a “high risk” as they have a large prediction interval. For instance, within a duration of less 30 days, the price may move with a range of $14.14 between high and low representing a 4.96%. The average daily volatility is estimated to be 5.21%. The fluctuations in currency exchange rates has been the major risk affecting the value of Netflix stock prices. Although it does not use foreign exchange contracts or derivatives to hedge against risk which could impact revenues and expenses of our international operations and expose us to foreign currency exchange rate risk. There are other options of hedging these type of risks. For the Netflix Inc., I will choose options as the hedging strategies against the foreign exchange and currency risk.
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For instance, in NASDAQ, the chain of put option of the entertainment industries such as Netflix are being traded at $1772 as December, 2018. Therefore, I buying Netflix stock and think due to volatility nature the price would go up but I want to protect my investment in case the price plummets. I will use put option to hedge this risk. Foregoing a small fee, I will buy the right of selling these stocks at the same price. If the price falls, I will execute my put and get back the money I had invested minus the fee.
Based on the current performance of Netflix stock tumbling at 9.4%, I can make a forecast of what to expect of the put option. Since July 2016, this the biggest drop as most of the U.S. indexes in the stock market recorded steep declines. It is likely that my put option will hedge certain level of risk considering that the stocks of other technology highfliers have been declining over the recent decade.
One of the derivatives website that has provided substantial amount of information about hedging is NASDAQ. This website provides an economic barometer of stock exchange as it measures the economic conditions of different countries. Further, it has helped in pricing of securities or placing a value on the securities on the basis of supply and demand factors. Lastly, while trading the put option, this website which belongs to a stock market provides a safety of transaction where they can only take place between the listed securities.
Valuation and use of options plays an essential role in the economy of a country. That is, the growth of commerce and industries and thus, having a great impact to economy as a whole. The investors will use the NASDAQ website in checking the spread of equity cult. This will help in investing in ownership securities by regulating better trading practices, new issues and also educating public about investment. Lastly, it is from such a website that investor gets a scope for speculations. Stock markets through their web ensure demand and liquidity of stock exchange securities which permits healthy speculations.
References
Annual Report Pursuant to Section 13 Or 15(D) Of The Securities Exchange ACT OF 1934 from https://www.sec.gov/Archives/edgar/data/1065280/000106528016000047/nflx201510k.htm
Chen, T. K., & Lu, C. A. (2017). Managers’ Strategically Textual Reporting in Hedging Derivatives and BHC Credit Risk.
Deng, S., Elyasiani, E., & Mao, C. X. (2017). Derivatives-hedging, risk allocation and the cost of debt: Evidence from bank holding companies. The Quarterly Review of Economics and Finance , 65 , 114-127.
