Netflix Options Traders Bet On Outsized Earnings Move

Bearish betting has ramped up on NFLX recently

by Patrick Martin

Published on Jan 16, 2019 at 12:07 PM
Updated on Jan 16, 2019 at 12:18 PM

Earnings season is about to hit high gear, and first up among the FAANG names is Netflix, Inc. (NASDAQ:NFLX), scheduled to report its fourth-quarter earnings after the close this Thursday, Jan. 17. While NFLX is known for making massive moves after its quarterly reports, the options market is expecting an even bigger-than-usual post-earnings swing in Friday's session.

Specifically, Trade-Alert places the implied earnings deviation for Netflix at 13% -- more than double the 6.4% next-day move the stock has averaged over the last two years' worth of earnings reports. During this eight-quarter span, NFLX has registered only one single-day post-earnings move in excess of 13% -- back in mid-July 2017, the stock popped 13.5% in the wake of its results.

On the charts, NFLX is down 0.7% today at $349.17, but has already added 30% in 2019. This rally has been aided in part by a Goldman bull note, and more recently by the news of its plan to up U.S. subscription prices. At its Christmas Eve closing low of $233.88, NFLX was nearly 11% below its 10-day moving average; as of Tuesday's closing bell, the stock was hovering roughly 13% above this short-term trendline.

Daily Stock Chart NFLX

Options traders, it seems, have been positioning for a downside move. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.16 ranks in the 98th percentile of its annual range. This points to a heavier-than-usual put-skew among short-term options traders.

More broadly, total put open interest on NFLX checks in at 552,166 contracts, which arrives in the 84th annual percentile. That figure outstrips total call open interest of 454,606 contracts, in the tamer 63rd annual percentile.

Regardless of direction, NFLX's Schaeffer's Volatility Scorecard (SVS) sits at a lofty 95 out of a possible 100, meaning the security has handily exceeded options traders' volatility expectations in the past year -- a boon for would-be premium buyers.

That said, short interest on NFLX has steadily deflated over the past couple of years to stand at 13.85 million shares, representing just one day's worth of short-covering potential at the equity's average daily trading volume. This is the lowest accumulation of Netflix short interest since June 2002 -- a factor that could contribute to a milder-than-usual earnings reaction this time around.

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