Schaeffer's Trading Floor Blog

Wall Street Still Doubts High-Flying Netflix, Inc. (NFLX)

Blowout price action in NFLX hasn't won over these stubborn bears

by 9/6/2013 11:18 AM
Stocks quoted in this article:

The shares of Netflix, Inc. (NASDAQ:NFLX) have been on a tear in 2013, rising more than 218% year-to-date. During the same time frame, the broader S&P 500 Index (SPX) has gained only 16% -- establishing NFLX as a major outperformer. Over the past 52 weeks, in fact, the stock has rallied about 421%.

However, traders seem to suspect that Netflix is due for a downturn. Put volume has been ramping up on the streaming-content provider in recent sessions, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the past 10 days, NFLX has racked up a 10-day put/call volume ratio of 0.90 on the ISE, CBOE, and PHLX. This ratio registers in the 66th annual percentile, indicating a heightened preference for puts over calls lately.

Looking back, the stock's 10-day put/call volume ratio has made a notable jump higher in recent sessions. As recently as Aug. 27, the indicator was docked at a much tamer 0.75. In other words, traders have been snapping up NFLX puts over calls at an increasingly rapid pace.

 NFLX SOIRConfirming this trend toward bearish bets on Netflix, Inc. (NASDAQ:NFLX) is the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.18. This ratio reveals that puts outnumber calls among options set to expire within three months, and it ranks higher than 80% of other such readings over the past year. This elevated percentile rank suggests short-term speculators have been more put-heavy toward NFLX only 20% of the time during the past year.

In light of the stock's impressive run higher, it is possible that investors are buying put options to hedge their NFLX shares against a pullback. However, signs of skepticism aren't limited to the options pits.

For example, short interest jumped by 5.3% during the most recent reporting period. During this same two-week time frame, Netflix gained 3.7%. The stock's ability to keep climbing in the face of steady selling pressure points to deep-seated technical strength. Meanwhile, with 13.8% of the equity's float sold short, there are plenty of bears who could be forced into hitting the exits if NFLX keeps rising.

Despite Thursday's price-target hike from RBC, most brokerage firms remain generally skeptical of Netflix. The stock has garnered only five "strong buy" recommendations, while the remaining 22 analysts are split among "hold," "sell," and "strong sell" ratings.

On the charts, Netflix, Inc. (NASDAQ:NFLX) is off 0.5% today to trade at $293.65. However, the stock remains well above short-term support at its 10-day and 20-day moving averages, as well as the recently conquered $290 level. If the shares continue to blaze a trail higher, an unwinding of skepticism could contribute to additional upside.

 Daily Chart of NFLX since June 2013 With 10-Day and 20-Day Moving Averages


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