Optimism Builds Ahead of Netflix, Inc. (NFLX) Earnings

Netflix, Inc. (NFLX) will report quarterly earnings on Monday night

by Alex Eppstein

Published on Apr 15, 2016 at 10:55 AM

Netflix, Inc. (NASDAQ:NFLX) is slated to report earnings next Monday evening, in what will be a busy week for quarterly earnings report. Today, our goal is to look at Wall Street's pre-event expectations for NFLX stock, in the options pits and beyond.

Starting things off, NFLX has historically made some big moves following its past eight earnings reports. Specifically, the stock has averaged a one-day post-event swing of 11.6% -- half to the upside, the other half to the downside. Expectations among options traders are roughly in line with this pattern, as the market is pricing in a 12.2% swing, in either direction, following the earnings report.

From the looks of it, most options traders anticipate NFLX's post-earnings price action will resolve to the upside. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 1.31 calls for each put during the past 10 weeks -- and the corresponding call/put volume ratio ranks in the bullishly skewed 82nd percentile of its annual range.

Underscoring this call bias is NFLX's Schaeffer's put/call open interest ratio (SOIR) of 1.01. While the SOIR shows put and call open interest are roughly equal among options expiring in the next three months, the reading sits below three-quarters of all others taken in the past year.

The brokerage crowd has taken a glass-half-full approach, too. Nearly 60% of analysts recommend buying NFLX, while the stock's consensus 12-month price target of $123.66 represents territory not charted since mid-December.

Meanwhile, short sellers have been hitting the exits ahead of NFLX earnings. During the last two reporting periods, short interest on the stock fell 7.7%. However, 11.8% of its float remains dedicated to short interest, and would take nearly a week to buy back, at NFLX's typical trading levels. It may be that some of the recent call buying has been fueled by short sellers seeking a hedge.

From a technical perspective, Netflix, Inc. (NASDAQ:NFLX) has been a mixed bag. Since bouncing from its mid-February lows around $80, the stock has advanced 38% to trade at $110.40. However, NFLX remains in negative year-to-date territory, and its breakeven level could translate into resistance going forward.

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