Options Bulls Blast Netflix Stock Following Upgrade

The security currently sports attractively priced premiums, to boot

Digital Content Manager
Mar 23, 2021 at 10:40 AM
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The shares of Netflix Inc (NASDAQ:NFLX) are up 3.1% at $539.14 this morning, after Argus Research upgraded the FAANG name to "buy" from "hold," and set a price target of $650. The analyst in question said Netflix has a competitive advantage given its ability to produce popular original content while expanding globally. Plus, the brokerage added that last month's tech selloff created an appropriate entry point for investors.

Over the past several weeks, Netflix stock has been cooling off from a Jan. 20, record high of $593.28. However, today's pop has helped the security break through overhead pressure at the $530 mark, with support from the 200-day moving average. Year-over-year, NFLX sports a 48.9% lead.

Analysts were already majorly optimistic towards the security coming into today, with 21 of the 28 in question carrying a "buy" or better rating, while seven called it a tepid "hold" or worse. What's more, the 12-month consensus target price of $619.43 is a 15.4% premium to current levels.

Additional tailwinds could come from a shift in the options pits, where puts are popular. This is per NFLX's 50-day put/call volume ratio of 0.68 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 88% of readings in its annual range. In other words, while calls still outnumber puts on an absolute basis, puts are being picked up at a faster-than-usual rate.

That shift seems to be already taking place today. So far, 39,000 calls have crossed the tape, which is three times the intraday average, and nearly four times the number of puts traded. Most popular is the weekly 3/26 540-strike call, followed by the 535-strike call in the same series, with news positions being opened at both. Buyers of these options foresee more upside for NFLX by the end of the week, when contracts expire.

Now could be an opportune time to bet on Netflix stock's next move with options. The security's Schaeffer's Volatility Index (SVI) of 30% sits higher than just 2% of readings from the past year. This indicates options players are pricing in relatively low volatility expectations at the moment.

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