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Netflix, Inc. (NFLX) Traders Call a Short-Term Top

Call sellers expect Netflix, Inc. to remain below $410 over the next two-plus weeks

by 2/5/2014 11:34 AM
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Option Brief: Netflix, Inc. (NASDAQ:NFLX) puts are outstripping calls in the options pits this morning. Even among some of the call traders, the outlook isn't of the typical bullish, buy-to-open variety -- particularly at one of the session's most active NFLX strikes.

Specifically, 1,421 contracts have crossed at the out-of-the-money February 410 call -- 90% at the bid price, suggesting they were sold. With implied volatility on the rise and just over 1,000 contracts in open interest here, it's safe to assume the calls were written to open.

In other words, the traders expect NFLX -- currently perched at $399.56 -- to finish below $410 at the closing bell on Friday, Feb. 21, when these front-month options expire. If that happens, the options will expire worthless, and the sellers will retain the initial premium received as their maximum potential profit. If the stock rallies beyond the strike price, however, the call writers may be assigned -- in which case, they could be forced to sell the shares for $410 each, no matter how high NFLX has climbed (meaning potential losses are theoretically unlimited).

Looking at the charts, the streaming content provider gapped higher late last month on strong growth in its subscriber base. Additionally, Netflix, Inc. (NASDAQ:NFLX) touched an all-time high of $412.40 on Jan. 31. Since then, the shares have consolidated near the $400 mark -- still more than twice their value from this time last year.


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