Netflix Draws Mixed Reactions Ahead of Q2 Earnings Report

The FAANG stock is up 59% year-to-date

Digital Content Manager
Jul 14, 2020 at 2:44 PM
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The shares of Netflix Inc (NASDAQ: NFLX) are down 1.9% to trade at $515.32 this afternoon, after UBS downgraded the media giant to "neutral" from "buy." Earlier this morning, however, brokerage firms seemed more optimistic, and NFLX earned a price target hike from Wedbush to $220 from $198. These mixed signals come only a few days ahead of the security's fiscal second-quarter report, which is due out after the close on Thursday, July 16. Below, we will take a look at how the equity has performed on the charts as of late, and explore some of the options activity surrounding NFLX ahead of the event. 

The equity has been on a serious upswing since late March, assisted by its 20-day moving average, which has contained most of the stock's pullbacks. Meanwhile, shares have been beating records on a monthly basis since April, with NFLX's most recent all-time-high coming in at $575.37 on July 13. Longer term, Netflix stock sports a healthy 59% year-to-date lead.

 NFLX

Analysts were majorly optimistic toward the equity coming into today. Of the 31 in coverage, 19 sport a "buy" or better rating. However, the 12-month consensus target price of $481 is a significant  6.9% discount to current levels, indicating more price-target hikes could be on the horizon.

In the options pits, calls are all the rage. NFLX sports a 10-day call/put volume ratio of 2.83 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the highest percentile of its annual range. This high percentile suggests a healthier-than-usual appetite for long calls of late.

That sentiment still reverberates today. At last check,113,000 calls have changed hands, which is more than twice the number of puts traded. Most popular by far is the weekly 7/17 600-strike call, where new positions are being opened. Buyers of these calls are banking on huge gains from the FAANG stock by the end of the week, when the options expire.

Lastly, a look at the equity's history of post-earnings reactions during the past two years shows a generally dismal response. During its last eight reports, six of these next-day sessions were lower, including a 10.3% drop in July 2019 and a 5.2% slip back in July 2018. The security averaged a post-earnings swing of 4.4% the last eight quarters, regardless of direction. This time around, the options market is pricing in a much higher move of 14.6%. 

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