Most Active Options Update: Netflix, Inc. (NFLX)

Netflix, Inc. is on the mend, attracting short-term option bulls

Oct 22, 2014 at 1:25 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 giant Netflix, Inc. (NASDAQ:NFLX), which is on the rebound -- and attracting short-term option bulls.

Most Active Options Table

After last week's notorious post-earnings plummet -- which offered up a lesson in pre-earnings options pricing -- the shares of Netflix, Inc. are 3.1% higher to trade at $377.16 today. Bolstering the equity are comments from billionaire Mark Cuban, who took to the airwaves to defend his decision to buy NFLX on the dip.

In light of the stock's post-earnings breakdown, NFLX's 14-day Relative Strength Index (RSI) fell to 27 -- in oversold territory, suggesting today's bounce may have been in the cards. What's more, options traders this afternoon are banking on an extended rally for the shares by the end of the week.

Intraday call volume is running at a 77% mark-up to the security's average pace, and the 10 most active strikes expire at Friday's closing bell. Digging deeper, it looks like bulls are buying to open the weekly 10/24 380-strike call, where most of the contracts have traded on the ask side, implied volatility has popped 4.6 percentage points, and volume exceeds open interest.

By purchasing the calls to open, the speculators expect NFLX to climb back atop $380 by Friday's close. Specifically, the traders will profit if the shares topple $383.61 (strike plus volume-weighted average price of $3.61), with profit potential theoretically unlimited north of breakeven. Earlier in the session, NFLX peaked at $381.98.

Risk is capped at the initial premium paid for the calls, should Netflix, Inc. (NASDAQ:NFLX) remain south of the strike through the end of the week. As a result of today's bounce, delta on the calls has surged to 0.43 from 0.13 at yesterday's close, implying a roughly 43% chance of the contracts expiring in the money.

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