Schaeffer's Trading Floor Blog

Options Check-Up: Netflix, Inc., Wal-Mart Stores, Inc., and Cisco Systems, Inc.

Analyzing recent option activity for NFLX, WMT, and CSCO

by 7/15/2014 7:43 AM
Stocks quoted in this article:

Among the stocks attracting attention from options traders lately are streaming video concern Netflix, Inc. (NASDAQ:NFLX), as well as blue chips Wal-Mart Stores, Inc. (NYSE:WMT) and Cisco Systems, Inc. (NASDAQ:CSCO). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on NFLX, WMT, and CSCO.

  • NFLX rallied 2.9% on Monday, bringing its year-to-date gain to roughly 23%. The stock has outperformed the broader S&P 500 Index (SPX) by nearly 26 percentage points during the past three months, and its short-term options are growing increasingly popular as traders watch the drama with the FCC and await NFLX's turn in the earnings confessional on Monday, July 21. The security's 30-day at-the-money (ATM) implied volatility (IV) popped 3.3% to 47.7% yesterday, and calls outnumbered puts -- marking a change of pace from the longer-term trend. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 50-day put/call volume ratio of 1.06 sits just 7 percentage points from an annual high, pointing to a healthier-than-usual appetite for Netflix, Inc. long puts over calls. Now is an opportune time to gamble with NFLX options, too; the stock's Schaeffer's Volatility Scorecard (SVS) of 100 suggests the shares have tended to make outsized moves on the charts, relative to what the options market has priced in.

  • WMT, meanwhile, bucked the broad-market trend higher on Monday, shedding 0.4% to finish at $76.55. The big-cap retailer made headlines over the weekend, after comedian Tracy Morgan filed suit for negligence, claiming the driver of a WMT truck was awake more than 24 hours before falling asleep at the wheel, resulting in a fatal crash. The equity's short-term options were hot yesterday, as the stock's 30-day ATM IV jumped 14.1% to 11.5%. Nevertheless, Wal-Mart Stores, Inc.'s (NYSE:WMT) near-term contracts are still attractively priced right now; the security's Schaeffer's Volatility Index (SVI) of 13% stands higher than just 27% of all other readings from the past year. From a sentiment perspective, WMT puts are the options of choice among buyers, as the stock's 50-day ISE/CBOE/PHLX put/call volume ratio of 1.41 sits just 1 percentage point from a 52-week high.

  • Finally, CSCO also inched lower on Monday, dropping 0.3% to $25.44. However, the stock's 14-day Relative Strength Index (RSI) rests at a lofty 69 -- near overbought territory, suggesting a pullback may have been in the cards. The security's 30-day ATM IV skyrocketed 21.1% to 20.2%, echoing a growing affinity for short-term options, though calls handily outnumbered puts. The preference for near-term calls marks a change of pace for Cisco Systems, Inc. option players, as the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.87 stands higher than 95% of all other readings from the past year. In other words, CSCO's short-term traders have rarely been more put-biased.

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