Netflix, Inc. (NFLX): A Lesson in Winning the Options Game

Netflix, Inc.'s post-earnings plunge has put buyers sitting on a steep profit

by Karee Venema

Published on Oct 16, 2014 at 2:59 PM
Updated on Jun 24, 2020 at 10:16 AM

Netflix, Inc. (NASDAQ:NFLX) is having a terrible day, with the shares off 19.8% to $359.79, after the company revealed uninspiring new subscriber data in last night's third-quarter earnings results. The news followed reports of increased competition on the streaming front, and was met with a wave of bearish brokerage notes. Not everyone is ruing today's bearish gap, though. In fact, yesterday's put buyers are profiting big time from the day's steep sell-off.

As my colleague Andrea Kramer noted yesterday, a number of pre-earnings option bears targeted the stock's October 380 puts on Wednesday, which were purchased for a volume-weighted average price (VWAP) of $0.96. Thanks to today's earnings-induced plunge, the puts are now in the money, and are currently trading at $18.85. Doing the math, that's a profit of 1,864%!

Elsewhere on the Street, short sellers are most likely cheering today's turn of events, considering more than 10% of the stock's float is sold short. For the sake of comparison, though, let's say one of these short sellers borrowed one share of NFLX yesterday when the equity was trading at $450. Hypothetically speaking, say this short bought back her borrowed share today when Netflix, Inc. (NASDAQ:NFLX) was at its intraday low of $331, resulting in a much slimmer 26.4% return on her original investment .


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