Netflix, Inc. (NFLX) Option Bulls Watch as Analyst Says 'Buy the Fear'

Piper Jaffray suggested the recent sell-off in "FANG" stocks -- including Netflix, Inc. (NASDAQ:NFLX) -- is overplayed

Nov 17, 2016 at 3:38 PM
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Netflix, Inc. (NASDAQ:NFLX) has shed 11% since topping out at its most recent high near $129 in late October, as so-called "FANG" stocks tumbled in the wake of Donald Trump's big win at the polls. And while the stock is now trading south of its 30-day moving average -- down 0.2% today at $114.99, on news Amazon.com, Inc. (NASDAQ:AMZN) is preparing to launch a global streaming service -- Piper Jaffray said it is "buying the fear priced into internet megacaps." Should the brokerage firm's projected rebound play out, options traders would likely be pleased -- considering a number of bulls have bet on a big near-term bounce for NFLX stock.

Taking a quick step back, Piper Jaffray reasoned the recent sell-off in these tech stocks -- which include Alphabet Inc (NASDAQ:GOOGL), AMZN, Apple Inc. (NASDAQ:AAPL), Facebook Inc (NASDAQ:FB), and NFLX -- is a result of nothing more than "sound bites that are unlikely to manifest during Trump's presidency." Additionally, the brokerage firm said this "presents a rare opportunity to buy pullbacks," and that the "tech industry is in more control of its own destiny than Donald Trump."

Options traders, meanwhile, have kept the faith on NFLX stock in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's top-heavy 10-day call/put volume ratio of 1.37 ranks in the slightly elevated 62nd annual percentile. Simply stated, calls have been bought to open over puts at a faster-than-usual clip of late.

Drilling down, NFLX's December 130 call has seen the biggest rise in open interest over this time frame, with 10,049 contracts added. This out-of-the-money call is now home to the security's top back-month open interest position, with 20,901 contracts outstanding. According to the major options exchanges, a healthy portion of this activity has been of the buy-to-open kind, meaning options traders expect the calls to expire in the money at the close on Friday, Dec. 16. Regardless of where Netflix, Inc. (NASDAQ:NFLX) settles, though, the most the call buyers stand to lose is the initial premium paid.

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