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Halftime—Whitney Tilson: Don't Short Good Companies On High Valuation

Is shorting this market hazardous to your health?

Whitney Tilson, founder and managing partner of T2 Partners, recently told his investors he covered his Netflix short, as the stock continues to make all time highs despite its steep valuation. If you watch "Fast Money" regularly, you know Tilson has been very bearish on Netflix.

"It should probably trade at 20 times earnings and it right now it trades at 67 times earnings,” Tilson said on Oct. 29.

In a letter on Thursday, Tilson explained his decision to now cover his short. Tilson differentiated between stocks he shorts because of fundamentals and stocks he shorts based on valuations. In this case, Tilson's decision was based solely on valuation.

Joe Terranova, chief market strategist at Virtus Investment Partners, said Tilson's move could lead to a short squeeze that sends the stock higher. He thinks other traders will want to follow Tilson out of this short position.

"Whitney Tilson is a great trader. He's going to be the first one to get through that exit door," Terranova said. "In Netflix's case, there's 27 percent short interest, so clearly there's many more folks behind him that have to get out."

Patty Edwards, chief financial officer at Virtus Financial, questions whether it's worth shorting this market at all.

"This is one of those markets, where the stuff that has been running has been running further and the stuff that can't get out of its own way ... continues to go lower," Edwards explained. "You've got to ride your winners in this market and if it's winning, I wouldn't want to short it."

—With writing from CNBC's Lee Brodie

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FLIP FROM BONDS TO STOCKS NEXT WEEK?

Even as Egyptian president Honsi Mubarak steps down, bonds remained higher on Friday, bringing yields down from 9 month highs. With political uncertainty and risks of contagion, can we expect to see a further flock to Treasurys?

For answers, the "Fast Money" desk turned to Guy LeBas, chief fixed income strategist at Janney Montgomery. Watch the videoto see the full conversation.

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CALL THE CLOSE

Before the "Fast Money" traders closed down Friday's "Halftime Report," they offered their thoughts on the market and ways to play it.

Terranova recommends buying protection through puts.

Edwards is a buyer of the market.

Grasso thinks the market could go higher. Najarian also thinks the market could go up, being as the financials are higher.

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Trader disclosure: On Feb 11, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Pete Najarian owns (F) bonds and calls; Pete Najarian owns (GM); Pete Najarian owns (V) call spreads; Pete Najarian owns (YHOO); Pete Najarian owns (MS); Pete Najarian owns (JPM) call spreads; Pete Najarian owns (C); Pete Najarian owns (BAC) call spreads; Pete Najarian owns (GE); Pete Najarian owns (MU) calls; Pete Najarian owns (AKAM) ; Pete Najarian owns (PEP); Pete Najarian owns (DRYS); Pete Najarian owns (ELX) calls; Terranova owns (VRTS); Terranova owns (C); Terranova owns (UPL); Terranova owns (GM); Terranova owns (PEP); Terranova owns (APA); Terranova owns (CVI); Terranova owns (SU); Terranova owns (CNQ); Grasso owns (ASTM); Grasso owns (BA); Grasso owns (BAC); Grasso owns (BWC); Grasso owns (C); Grasso owns (CSCO); Grasso owns (JPM); Grasso owns (LIT); Grasso owns (LPX); Grasso owns (MT); Grasso owns (MHY); Grasso owns (NDAQ); Grasso owns (PFE); Grasso owns (PRST); Grasso owns (S)

For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LPHI)
Virtus Investment Partners Owns More Than 1% Of (NRCI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLF)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of (DPUKF)

For Patty Edwards
Edwards owns (SPY) for clients
Edwards owns (XLB) for clients
Edwards owns (GLD) for clients
Edwards owns (SLV) for clients
Edwards owns (AMZN) for clients
Edwards owns (TTM) for clients
Edwards owns (V) for clients
Edwards owns (HPQ) for clients
Edwards owns (CSCO) for clients
Edwards owns (JNJ) for clients
Edwards owns (AAPL) for clients
Edwards owns (VZ) for clients
Edwards owns (MSFT) for clients
Edwards owns (C) for clients
Edwards owns (SYT) for clients
Edwards owns (POT) for clients
Edwards owns (GE) for clients
Edwards owns (TGT) for clients
Edwards owns (PEP) for clients
Edwards owns (WFMI) for clients
Edwards owns (CME) for clients
Edwards owns (TAL) for clients
Edwards owns (FXI) for clients

For Steve Grasso:
Stuart Frankel & Co and its partners own (ABX)
Stuart Frankel & Co and its partners own (ABT)
Stuart Frankel & Co and its partners own (AMGN)
Stuart Frankel & Co and its partners own (CSCO)
Stuart Frankel & Co and its partners own (CUBA)
Stuart Frankel & Co and its partners own (GERN)
Stuart Frankel & Co and its partners own (HSPO)
Stuart Frankel & Co and its partners own (NWS.A)
Stuart Frankel & Co and its partners own (NYX)
Stuart Frankel & Co and its partners own (PFE)
Stuart Frankel & Co and its partners own (PRST)
Stuart Frankel & Co and its partners own (SDS)
Stuart Frankel & Co and its partners own (XRX)
Stuart Frankel & Co and its partners own (SDS)
Stuart Frankel & Co and its partners are short (QQQQ)
Stuart Frankel & Co and its partners are short (AAPL)
Stuart Frankel & Co and its partners are short (TIF)

GUY LEBAS
Janney Montgomery Scott Makes A Market In High-Yield Bonds Of Various Issuers

NATASHA BOYDEN
Cantor Fitzgerald and/or its affiliates, has acted as lead or co-manager in a public offering of equity and/or debt securities for (SB) within the last 12 months
Cantor Fitzgerald and/or its affiliates has received compensation for investment banking services in the last 12 months from (SB)
Cantor Fitzgerald and/or its affiliates, expect to receive, or intend to seek, compensation for investment banking services within the next three months from (SB)
Cantor Fitzgerald and/or its affiliates is a market maker in (SB)
Cantor Fitzgerald and/or its affiliates, expect to receive, or intend to seek, compensation for investment banking from (NM) in the next 3 months
Cantor Fitzgerald and/or its affiliates is a market maker in (NM)

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CNBC.com with wires.