Netflix Stock Added to Goldman Sach's "Conviction List"

Goldman Sachs sees NFLX offering a strong risk/reward model

by Patrick Martin

Published on Jan 4, 2019 at 9:14 AM

The shares of Netflix, Inc. (NASDAQ:NFLX) are up 4% in electronic trading this morning after Goldman Sachs added the FAANG name to its "conviction list." Goldman Sachs believes Netflix offers one of the best risk/reward propositions of all the
U.S. internet stocks, noting the company's commitment to content will keep driving subscriber growth. While the brokerage firm lowered its price target to $400, this still represents 49% upside from NFLX's Jan. 3 close of $271.20. 

Should today's price action hold, Netflix stock will topple its 40-day moving average for the first time on a closing basis since mid-October. Despite a bear note earlier this week, the equity still boasts a 12-month gain of 32% and has seasonal tailwinds on its side.

Options traders have preferred calls over puts by a fair margin. According to data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 91,076 calls in the last 10 sessions, compared to 77,500 puts. 

Meanwhile, NFLX's 30-day at-the-money implied volatility (IV) of 68% ranks in the 98th annual percentile, meaning near-term options are pricing in higher-than-usual volatility expectations at the moment. Plus, its 30-day IV skew of 17.3% registers in the 93rd percentile of its 12-month range, suggesting puts are pricier-than-normal than their call counterparts, from a volatility perspective.

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