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Option Brief: Netflix, Inc. (NASDAQ:NFLX) has backpedaled 2.8% to $343.50, effectively erasing the stock's post-earnings bull gap from Tuesday, and sending the shares into the red for the week. Against this backdrop, both bulls and bears are placing eleventh-hour bets on NFLX's end-of-week trajectory.
Intraday call and put volume are running at close to twice the normal rate, with around 41,000 calls and 47,000 puts exchanged. Echoing the demand for short-term contracts is the stock's 30-day at-the-money implied volatility (IV), which has jumped 6.1% to 40.9%. In fact, the 10 most active strikes expire at Friday's close, and all have seen volume surpass open interest, underscoring our suspicions of last-minute initiations.
Most popular are the weekly 4/25 350-strike call and 340-strike put, where around 5,900 and 4,900 contracts have traded, respectively. The majority of the options have changed hands on the ask side, volume has exceeded open interest, and IV has shot higher at both strikes, hinting at buy-to-open activity.
To profit on their call purchases, the buyers need NFLX to climb back atop $352.01 -- the strike plus the volume-weighted average price (VWAP) of $2.01 -- by tomorrow's close, when the options expire. On the flip side, the put buyers will make money if NFLX closes the week below breakeven at $336.11 (strike minus VWAP of $3.89). Risk, meanwhile, is limited to the initial premium paid for the options, should the contracts expire out of the money.
On the charts, Netflix, Inc. (NASDAQ:NFLX) shares are in danger of ending beneath their 10-day moving average for the first time since April 16. This trendline ushered the stock lower in the wake of its record high of $458, tagged in early March, and could resume its role as resistance. Off the charts, speculators are digesting reports of a proposed "fast lane" for Internet service providers -- reports the Federal Communications Commission said were "flat out wrong" -- as well as a streaming video deal between Amazon.com, Inc. (NASDAQ:AMZN) and HBO.