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Netflix, Inc. (NFLX) Option Players Gamble On More Upside

NFLX fans are buying very short-term call options

by 3/14/2013 1:31 PM
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Last-minute option bulls have set their sights on Netflix, Inc. (NASDAQ:NFLX - 190.50) today, with traders scooping up soon-to-expire calls. At last look, the streaming video provider has seen about 33,000 calls change hands -- a 19% mark-up to its average afternoon volume. For comparison, just about 26,000 NFLX puts have crossed the tape, on pace with the norm.

Most popular are the March 190 and 195 calls, which have seen roughly 7,000 and 6,500 contracts exchanged, respectively. Volume has exceeded open interest at both strikes, and the majority of the calls have traded at the ask price, hinting at newly bought bullish bets.

Digging deeper, the 190-strike calls traded at a volume-weighted average price (VWAP) of $2.29, meaning the buyers' profit will increase the higher NFLX exceeds $192.29 (strike price plus VWAP) by the closing bell tomorrow, when front-month options expire. Meanwhile, the VWAP of the out-of-the-money, 195-strike calls is $0.90, indicating a breakeven of $195.90 for the buyers. However, should NFLX finish the week beneath the strikes, the most the buyers have risked is the initial premium paid for the calls.

From a sentiment perspective, today's affinity for near-term calls represents a change of pace among NFLX speculators. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.45 indicates that puts outnumber calls among options with a shelf-life of three months or less. What's more, this ratio registers in the 87th percentile of its annual range, suggesting that short-term options players are more put-biased than usual at the moment.

In the same skeptical vein, the brokerage bunch remains devoted to the bears' club. Despite outperforming the broader S&P 500 Index (SPX) by a whopping 87 percentage points during the past three months, NFLX boasts just six "buy" or better endorsements, compared to 17 tepid "holds" and four "sell" or worse suggestions. Furthermore, the average 12-month price target on the stock stands at a paltry $139.04, representing a serious discount to NFLX's current share price.

Should NFLX extend its upward momentum, this sentiment setup leaves the door wide open for contrarian tailwinds. A change of heart among the options crowd, or a round of upgrades and/or price-target hikes, could lure even more buyers to the bandwagon.


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