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Most Active Options Update: Netflix, Inc. (NFLX)

Netflix, Inc. traders are placing last-minute bearish bets

by 4/25/2014 2:02 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest this afternoon is Netflix, Inc. (NASDAQ:NFLX).


Last-minute bettors continue to target NFLX, as the stock extends its retreat another 5.4% to flirt with $325.61. The shares are now testing their mettle atop their 50-week moving average, and are dangerously close to a year-to-date closing low, despite Netflix, Inc. inking a deal to bring streaming content to TiVo Inc. (NASDAQ:TIVO) set-top boxes for three U.S. cable operators -- the first deal of its kind in the States. Earlier this week, Netflix reported stronger-than-expected first-quarter earnings, and hinted at the deal in a letter to shareholders, saying it hopes to "try to extend to non-TiVo devices" in the near future.

Speculators are rushing to bet on NFLX's afternoon price action, as the 10 most active strikes expire at the closing bell. What's more, all 10 have seen volume surpass open interest, pointing to new initiations. Likewise, the equity's 30-day at-the-money implied volatility is 10.8% higher at 42.7%, reflecting the elevated demand for short-term contracts.

Digging deeper, there seems to be a relatively rare skeptical skew in the options pits; roughly 44,000 calls and 59,000 puts have traded, compared to NFLX's average intraday volume of about 35,000 calls and 31,000 puts. In fact, it appears speculators are employing both puts and calls to place neutral-to-bearish bets.

"Vanilla" option bears are buying to open the weekly 4/25 330- and 325-strike puts -- the former of which is the most active on the day, with nearly 7,700 contracts exchanged. Volume has surpassed open interest at both strikes, and a significant number of the puts have traded on the ask side, hinting at buy-to-open action. By purchasing the puts to open, the buyers expect NFLX to end the session south of the respective strikes today, but will risk the initial premium paid if the shares finish atop the strikes at the close.

Meanwhile, the security's weekly 4/25 340-strike call is second most active, with nearly 5,100 contracts traded. However, most of the calls changed hands at the bid price, and volume exceeds open interest, pointing to sell-to-open activity. By writing the calls to open, the sellers expect NFLX to remain south of $340 through the close, rendering the options worthless at expiration, and allowing the traders to pocket the initial credit received.

As alluded to earlier, today's bearish bias is out of the norm for NFLX. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 1.14 stands higher than 71% of all other readings from the past year, suggesting a healthier-than-usual appetite for bullish bets over bearish of late. Likewise, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.94 sits just 10 percentage points from a 12-month nadir, implying that short-term options players are much more call-heavy than usual.

Looking ahead, Netflix, Inc. (NASDAQ:NFLX) will be keeping an eye on the Federal Communications Commission (FCC). The group is expected to vote on a new set of "net neutrality" rules -- which will "establish that behavior harmful to consumers or competition by limiting the openness of the Internet will not be permitted," according to a blog post by FCC Chairman Tom Wheeler -- on Thursday, May 15.


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