Why Netflix, Inc. (NFLX) Could Extend Its Run Into Triple-Digit Territory

Netflix, Inc. (NFLX) is back above $100, and option traders foresee more short-term gains ahead

by Alex Eppstein

Published on Mar 4, 2016 at 2:15 PM

Netflix, Inc. (NASDAQ:NFLX) is on track to close above $100 for the first time since late January, up 3.5% at $101.33. Not surprisingly, option traders are out in force, with intraday call volume at 1.9 times the expected rate. Short-term speculators are especially active on the streaming content stock, with the weekly 3/4 series accounting for eight of the 10 top-trading options.

Diving right, the weekly 3/4 100-strike call is NFLX's most active option today, and it looks like some traders are buying to open these now in-the-money positions. In so doing, the buyers are anticipating additional gains between now and tonight's close, when the series expires. Going out further in time, the weekly 3/11 100-strike call is also seeing buy-to-open activity, as traders think today's rally will carry through the end of next week.

Calls have been the options of choice on NFLX in recent weeks, per data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 10-day call/put volume ratio across that trio of exchanges is 1.24, with long calls outstripping puts. What's more, the ratio ranks in the bullishly skewed 71st percentile of its annual range.

Underscoring this preference for calls over puts is NFLX's Schaeffer's put/call open interest ratio (SOIR) of 0.89. Not only does this SOIR indicate calls outstrip puts among options with a shelf-life of three months or less, but it also rests below 88% of comparable readings from the past year.

That's not to say everyone's sold on NFLX. Eleven analysts still consider the shares a "hold" or "strong sell." Plus, short interest has been edging higher in recent reporting periods, and now accounts for 13.1% of the stock's total float.

From a contrarian perspective, these skeptics could be in danger. Since its Feb. 8 low at $79.95, the stock has surged close to 27%. Plus, if Netflix, Inc. (NASDAQ:NFLX) can close out the day above the psychologically significant $100 level -- which roughly corresponds to its 50-day moving average -- the shares could benefit from double-barreled technical support.

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