Net Neutrality: 3 Stocks to Watch

Twitter Inc (TWTR), Netflix, Inc. (NFLX), and Verizon Communications Inc. (VZ) weigh in ahead of the FCC's net neutrality vote

Feb 25, 2015 at 1:37 PM
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The Federal Communications Commission (FCC) is scheduled to vote on net neutrality Thursday. At its most basic level, net neutrality is an attempt to classify wired and wireless broadband services as utilities, which would fall under the regulation umbrella of the FCC -- and to keep companies from speeding up or slowing down Internet services based on paid prioritization (a more comprehensive explanation of FCC Chairman Tom Wheeler's proposition can be found here). The hotly contested proposal has prompted a number of firms to weigh in on the issue, including Twitter Inc (NYSE:TWTR), Netflix, Inc. (NASDAQ:NFLX), and Verizon Communications Inc. (NYSE:VZ).

Twitter Inc (NYSE:TWTR)

TWTR chimed in on net neutrality earlier this week, saying it embraces the FCC's goal to regulate the Internet. In a released statement, the company said, "We strongly support ensuring that such rules include prohibitions against blocking or throttling of sites and services as well as the paid prioritization of some traffic over others."

Technically speaking, TWTR has had a strong month -- thanks to well-received earnings and acquisition announcements -- up 29.4% to trade at $48.58. Options traders have responded in kind, and at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 4.03 ranks higher than all other comparable readings taken in the past year. In other words, calls have been bought to open over puts at an annual-high clip in recent weeks.

Netflix, Inc. (NASDAQ:NFLX)

As with TWTR, NFLX has also argued in favor of net neutrality, specifically, in regard to "Internet fast lanes." The company -- which reimburses several domestic Internet Service Providers (ISPs) for direct access to their networks -- explains, "Those who can't pay for fast lanes will suffer, entrenching incumbents while undermining the innovative power of the Internet. While the largest ISPs have said they're not interested in creating fast lanes, one need only look at how they have sought to monetize their network interconnection points to get a glimpse of the future."

On the charts, NFLX has rallied 40% year-to-date, and at its current perch near $478.69, the stock is within a chip-shot of its Sept. 9 all-time high of $489.29. Options traders have taken the glass-half-full approach toward the outperforming equity in recent months, as evidenced by the security's 50-day ISE/CBOE/PHLX call/put volume ratio of 1.07, which ranks in the 95th annual percentile. Simply stated, long calls have been initiated over puts at a faster clip just 5% of the time within the past year.

Verizon Communications Inc. (NYSE:VZ)

On the other side of the coin are telecommunications firms, such as VZ, who are arguing against more oversight. Under the proposal, regulation of broadband providers would fall under Title II of the Communications Act -- increasing the authority of the FCC to police back-end deals, and keep telecommunication companies from charging unfair fees. In a January FCC filing (subscription required), VZ echoed its 2011 lawsuit against the FCC, saying "[T]he vague standards of Title II themselves breed investment-chilling uncertainty over the scope of future regulation, particularly given the inevitable propensity for regulatory creep."

Looking at the charts, VZ has tacked on 7.5% in February to trade at $49.15. This upside came amid the company's unloading of $10.5 billion in wireless assets, which it says is a result of uncertainty surrounding the FCC's net neutrality proposal. On the sentiment front, speculators have shown a distinct preference for put buying in recent weeks. At the ISE, CBOE, and PHLX, the security's 10-day put/call volume ratio of 4.67 rests at an annual peak.



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