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Netflix, Inc. (NASDAQ:NFLX) is trending almost 3% higher today, amid news that it has inked an expanded licensing deal with The Weinstein Company, which gives the former exclusive rights to the latter's films beginning in 2016. As a result, bullish betting has accelerated on the streaming video service, with around 28,000 calls crossing the tape thus far -- a 45% mark-up over the norm, and 6,000 more than the number of puts exchanged.
Most popular has been the weekly 8/23 270-strike call, which has seen almost 4,300 contracts change hands -- the majority of them at the ask price, signaling buyer-driven activity. These out-of-the-money calls traded at a volume-weighted average price (VWAP) of $2.90. Since today's volume has surpassed current open interest levels, and implied volatility was last seen 2.7 percentage points higher, we can assume that some of the contracts are of the buy-to-open variety.
In this scenario, the call buyers will profit if NFLX muscles north of breakeven at $272.90 (strike price plus the VWAP) by this Friday's close, which is when these weekly options expire. This reflects an increase of 2% from the equity's present price of $267.50, as well as territory not charted since July 2011. The delta for this call is docked at 0.43, suggesting it has a 43% chance of finishing in the money.
Today's vote of confidence toward the security goes against the bearish grain, in terms of sentiment on the Street. Although short interest fell by 5.3% during the last two reporting periods, these pessimistic bets still make up a lofty 13.1% of the equity's available float. With nearly seven million shares presently sold short, the stock could end up benefiting from another wave of short-covering activity down the road, should NFLX continue along its upward trajectory.
Also of note, only five covering analysts have handed out a "strong buy" endorsement, compared to 18 "holds" and five "sell" or worse suggestions. In fact, Baird initiated coverage of the shares with a tepid "neutral" rating earlier this month -- yet NFLX still finished higher on the day. Even more telling, the consensus 12-month price target of $230.49 represents a 13.8% discount to the security's current perch. In other words, a round of much-deserved upgrades and/or price-hikes may be in the cards for NFLX, which could amplify the stock's positive price action of late.
Speaking of performance, Netflix, Inc. (NASDAQ:NFLX) has been a technical standout, soaring about 189% year-to-date, and more than quadrupling in value during the past year. The shares have also outpaced the broader S&P 500 Index (SPX) by 10.5 percentage points over the most recent three-month time frame. Still, even if the stock stays south of the $270 level between now and this Friday's closing bell, the most today's call buyers risk forfeiting is the premium paid.