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

Netflix, Inc. option traders are placing low-priced, short-term bets

by 7/30/2014 12:51 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 today is Netflix, Inc. (NASDAQ:NFLX), which is popular among short-term speculators.

Most Active Options Table

Netflix, Inc. is bucking the broad-market trend lower today, up 1.4% at $430.30. The stock is on pace for a 2% weekly gain, as traders hope for a streaming Seinfeld deal and digest the company's freshly inked interconnection agreement with AT&T Inc. (NYSE:T).

In today's session, speculators are seemingly taking advantage of low-priced NFLX options. The stock's 30-day at-the-money implied volatility (IV) hit a 52-week low earlier in the session, but was last seen 1.2% higher at 29.9%.

Weekly options expiring on Friday are dominating the options pits, and make up nine of the 10 most active NFLX contracts thus far. The weekly 8/1 425- and 430-strike puts, as well as the weekly 8/1 430-strike call, have all seen volume exceed open interest, hinting at new initiations. Underscoring this theory, IV is several percentage points higher at each strike. Meanwhile, the majority of the options have traded on the ask side, pointing to buyer-driven volume.

The volume-weighted average price (VWAP) of the 425-strike put is $2.29, making at-expiration breakeven $422.71 (strike minus VWAP). The buyers' profit will increase the lower NFLX sinks beneath breakeven, while risk is capped at the initial premium paid, should the stock remain atop the strike through Friday's close. In light of the stock's advance, delta on the put has fallen to negative 0.31 from negative 0.52 at Tuesday's close, suggesting the options have about a 31% chance of expiring in the money.

Due to its added intrinsic value, the VWAP of the 430-strike put is $4.21, making breakeven $425.79. Because the put is at the money, its delta stands at negative 0.51, giving the options about a 1-in-2 shot of being in the money at expiration. Again, risk is capped at the initial premium paid, if NFLX is perched atop $430 at week's end.

Meanwhile, the VWAP of the weekly 8/1 430-strike call is $3.74. As such, the short-term bulls will begin to profit if NFLX extends its climb and topples $433.74 (strike plus VWAP) by Friday's close, with gains theoretically unlimited to the upside. As with the puts, the maximum loss is limited to the initial premium paid for the call, should Netflix, Inc. (NASDAQ:NFLX) shares end the week beneath $430. Delta on the call has surged in light of the stock's uptick, and now stands at 0.49, compared to 0.30 at yesterday's close.


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