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Shares of Netflix, Inc. (NASDAQ:NFLX) are up 4.7% to $315.00 this morning, following news that the streaming video concern is working on deals to provide content to cable providers. The report also seems to have triggered a flurry of bullish options activity, as NFLX has seen about 22,000 calls cross the tape thus far -- a 77% increase over the norm. By contrast, around 14,000 puts have changed hands.
Most active has been the October 320 call, where north of 3,500 contracts have been exchanged at a volume-weighted average price (VWAP) of $4.12. Since the majority of these calls traded at the ask price -- and implied volatility has climbed 7.4 percentage points since the opening bell -- it's likely that new positions have been created here. If these contracts were, in fact, bought to open, speculators are counting on NFLX to ascend past breakeven at $324.12 (strike price plus the VWAP) by front-month expiration this Friday. This denotes a rise of 2.8% from the stock's present perch.
Also garnering notable attention has been the October 315 call, which has seen over 3,000 contracts cross at a VWAP of $5.95. Again, a large portion of the calls switched hands at the ask price, and implied volatility has spiked higher, implying that fresh bullish bets were initiated here, as well. In this scenario, however, traders will profit with each step NFLX takes north of $320.95 (strike price plus the VWAP) between now and the close on Oct. 18. The delta for this option sits at 0.47 -- up from Friday's reading of 0.51 -- meaning it has a 1-in-2 chance of moving into the money during its lifetime.
It also bears mentioning that short interest represents 13.3% of NFLX's available float, raising the possibility that some of the aforementioned call volume (particularly of the out-of-the-money variety could be the work of short sellers looking to hedge their bearish bets. Either way, maximum losses are limited to the initial cash outlay, should the shares finish below the strike prices when the options expire.
Technically speaking, Netflix, Inc. (NASDAQ:NFLX) has been an outperformer, more than tripling in value so far in 2013, and skyrocketing about 389% during the last 12 months. Also of note, the security's Schaeffer's Volatility Scorecard of 100 implies that NFLX has tended to make outsized moves on the charts over the course of the past year, relative to what the options market has priced in.
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