Netflix, Inc. (NFLX) Option Traders Eye a Short-Term Bounce

Traders are picking up Netflix, Inc. (NASDAQ:NFLX) calls as the stock pares some of Tuesday's post-earnings losses

Apr 20, 2016 at 12:19 PM
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Netflix, Inc. (NASDAQ:NFLX) reported first-quarter earnings above analyst expectations Monday night, but the company lowered its outlook for subscriber growth, particularly in international markets. As a result, no fewer than 11 brokerage firms lowered their price targets on the stock, and NFLX gave up 13% during Tuesday's session. Today, the stock has added back 1.5% to sit at $95.79, prompting traders to rush to the options pits, where NFLX's near-term options look like a bargain.

Technically speaking, NFLX hit a record high in early December, but plummeted at the start of the year. The shares were enjoying a healthy rebound heading into earnings, and even climbed back atop their 200-day trendline. After earnings, however, NFLX now sits 16% lower year-to-date, and beneath support from its 20-day moving average.

Daily Chart of NFLX 2

While NFLX remains on the short-sale restricted list after Tuesday's drop, short interest is elevated, representing almost 12% of the stock's available float. Option traders have also been relatively bearish lately, with the stock's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sitting higher than about two-thirds of the past year's readings, at 0.88.

Today, NFLX options are trading at nearly twice their usual intraday pace, with calls outnumbering puts by a healthy margin. It looks like a fair number of traders are betting on the equity to extend today's bounce through the end of the week, as some buy-to-open action has been spotted at the weekly 4/22 95-, 97-, and 98-strike calls.

And in light of the post-earnings volatility crush, now could be a prime time to pick up Netflix, Inc.'s (NASDAQ:NFLX) short-term options. The stock's Schaeffer's Volatility Index (SVI) of 40% is now parked in the low 16th percentile of its annual range, meaning that near-term options are pricing in historically low volatility expectations. 

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