Is It Time to Buy Netflix, Inc. (NFLX) Options?

Netflix, Inc. (NFLX) options are attractively priced as the stock rebounds off of support

Feb 22, 2016 at 1:55 PM
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Streaming media giant Netflix, Inc. (NASDAQ:NFLX) is trading 3.9% higher at $92.70 today, shrugging off a price-target cut to $130 from $140 at Goldman Sachs (which also weighed in on a slew of other Tech 2.0 stocks this morning). And as the stock powers higher, it looks like now might be an opportune time for options traders to jump on NFLX.

Looking at Netflix, Inc. from a technical standpoint, the stock appears to have plenty of upside potential. The shares have pulled back significantly from December's all-time high of $133.27 -- but NFLX is still up nearly 37% year-over-year. The stock is also in the process of rebounding off its 320-day moving average. Looking back, our quantified data indicates that two prior tests of this under-the-radar trendline have yielded an average 21-day return of 10.72% for NFLX shares.

Meanwhile, options traders have started to lean bearish on NFLX. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 0.97 is now higher than 78% of all readings from the past year. This indicates that traders have bought to open NFLX puts at a faster-than-usual pace relative to calls during the past couple of weeks.

Short sellers are also skeptical of NFLX, with shorted shares accounting for nearly 13% of the equity's available float. And 11 analysts currently rate the stock a "hold" or worse, leaving plenty of room for future upgrades, should NFLX continue to bounce from trendline support. An unwinding of negative sentiment among options traders, short sellers, or analysts could help the stock move higher in the days and weeks ahead.

For those looking to bet on another run higher from NFLX, now is a prime time to buy options. As of Friday's close, the stock's Schaeffer's Volatility Index (SVI) of 52% arrived in just the 28th percentile of its annual range -- meaning premiums for NFLX options should be relatively cheap. Plus, the stock boasts a Schaeffer's Volatility Scorecard (SVS) of 100 -- the highest possible reading -- indicating that Netflix, Inc. (NASDAQ:NFLX) shares have consistently exceeded the options market's volatility expectations over the past year.

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