Earnings Preview: Netflix, Inc. (NFLX)

Netflix, Inc. (NFLX) will report third-quarter earnings after tonight's close

by Kirra Fedyszyn

Published on Oct 17, 2016 at 10:51 AM

Streaming media giant Netflix, Inc. (NASDAQ:NFLX) is due to report its third-quarter earnings after the close this evening. Ahead of tonight's quarterly earnings report, NFLX stock is 2.5% lower at $98.89. And although recent history suggests the stock could be poised to extend these losses in tomorrow's post-earnings trading, options traders have taken the glass-half-full approach to NFLX of late.

Over the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have purchased 369,320 NFLX calls, compared to 252,685 puts. The resulting call/put volume ratio of 1.46 ranks just 5 percentage points from an annual high, indicating calls have been bought to open over puts at a faster-than-usual clip.

Drilling down on more recent activity, call buyers have still dominated the stock's options pits. For instance, NFLX's October 110 call saw the largest rise in open interest over the last two weeks -- with 8,814 contracts added -- and data from the major exchanges confirms the bulk of the action was of the buy-to-open variety.

However, the company’s recent post-earnings history is far from encouraging. NFLX stock has made a move to the downside in the session following earnings in each of the last four quarters. And the shares have tended to make some volatile moves, too. The average single-day swing -- regardless of direction -- in the session subsequent to earnings over the past two years comes in at 13.4%. As of now, the options market is pricing in an even wider 16.5% move for Tuesday's trading.

From a technical standpoint, this year has been something of a mixed bag for Netflix, Inc. (NASDAQ:NFLX). The shares are off 13.5% in 2016, and have yet to close their late April earnings-induced bear gap. And while the stock has outperformed the broader S&P 500 Index (SPX) by more than 20 percentage points over the last three months, today's slip has NFLX below the historically significant $100 level. Plus, the stock is testing its 30-day moving average -- a trendline that has served mostly as support since a late-July earnings-related plunge.

NFLX Daily Chart October 17

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