Most Active Options Update: Netflix (NFLX)

Netflix, Inc. is cooling off amid competition from HBO, but options are hot ahead of earnings

Oct 15, 2014 at 1:02 PM
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The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest today is streaming video concern Netflix, Inc. (NASDAQ:NFLX), which will step up to the earnings plate tonight.

Most Active Options Table

Netflix, Inc. is trading 2.3% lower at $439, as news of escalating competition is lighting up the Twitter-sphere. Specifically, HBO -- owned by Time Warner Inc (NYSE:TWX) -- today announced plans to launch an online-only subscription service in the U.S., and will expand the product globally in the coming years.

Against this backdrop, NFLX's 30-day at-the-money (ATM) implied volatility (IV) has shot 7.4% higher to 43.5%, reflecting a growing demand for short-term options. Calls and puts are trading near parity so far today, and nine of the 10 most active strikes expire at Friday's close.

Digging deeper, the stock's deep out-of-the-money October 380 put has seen apparent buy-to-open activity, and will move into the money if NFLX dives beneath $380 -- territory not charted since May -- by the end of the week. In order to breach the strike, the shares would need to surrender about 13.4% from their current perch.

NFLX dropped 5.9% over the three sessions following its last turn in the earnings confessional. Broadening that to the past eight quarters, though, the stock has averaged a three-day post-earnings gain of 9.5%.

Heading into tonight's earnings report, options traders have shown a bullish skew. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 1.10 stands higher than 84% of all other readings from the past year, pointing to a healthier-than-usual appetite for long calls over puts during the past two weeks.

Whatever the bias, now is an opportune time to bet on Netflix, Inc. (NASDAQ:NFLX), despite today's 30-day ATM IV surge. The security's Schaeffer's Volatility Scorecard (SVS) currently sits at 100, indicating that NFLX has tended to make outsized moves on the charts, relative to what the options market has priced in.


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