Netflix Stock Could Catch Options Traders Off Guard

Netflix stock pulled back to its 40-day moving average -- a historically bullish indicator in recent years

Mar 23, 2017 at 3:32 PM
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Netflix, Inc. (NASDAQ:NFLX) has seen some of the most active options trading over the past 10 sessions, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Puts have seen more action than calls, with 301,441 of the former and 271,216 of the latter traded. Plus, NFLX stock's 10-day put/call volume ratio of 1.02 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 88th percentile of its annual range. In other words, the shares have seen an influx of put buying versus call buying in recent weeks.

Echoing this put-skewed backdrop is the stock's top-heavy Schaeffer's put/call open interest ratio (SOIR) of 1.28, indicating put open interest outweighs call open interest among options expiring in three months or less. This ratio ranks above all others taken in the past year, meaning short-term options traders are more put-heavy now toward NFLX than they've been at any point over the last 12 months.

Considering NFLX shares are lingering near uncharted territory, it's possible some of the recent put buying is a result of shareholders protecting paper profits against an unexpected decline. However, there's plenty of skepticism levied toward the stock outside of the options arena, too, which could help buoy the shares down the road.

For starters, after hitting its lowest point in 15 years in mid-February, short interest rose 1.9% in the most recent reporting period to 24.1 million shares. This could bode well for NFLX in the near term, as it would take shorts more than six sessions to cover these bearish bets, at the stock's average pace of trading -- meaning there's plenty of buying power sitting on the sidelines.

Elsewhere, 11 of 31 analysts still maintain a "hold" or worse rating, even though NFLX is up 44% year-over-year. Should any analysts follow in the bullish footsteps of MKM Partners -- which today reiterated its upbeat "buy" rating and record-high $175 price target, saying Netflix is "becoming a programming powerhouse" -- the stock could climb even higher. 

Lastly, Netflix, Inc. (NASDAQ:NFLX) pulled back to its 40-day moving average, after notching an all-time peak of $147.70 on Tuesday, last seen at $141.88. This has historically been a bullish indicator for NFLX shares, according to White's data, considering in the 10 other times this has occurred in the last three years, the stock has been positive 70% of the time one week out, averaging a gain of 2.7%. Twenty-one days later, Netflix stock has been up two-thirds of the time, boasting an average return of 2.8%.

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