Netflix, Inc. (NFLX) Subscriber Retention Concerns Spark Bearish Options Betting

Netflix, Inc. (NASDAQ:NFLX) is lower on concerns about subscriber retention, and some options traders are betting on more short-term downside

Jun 21, 2016 at 1:36 PM
facebook twitter linkedin

The shares of streaming entertainment giant Netflix, Inc. (NASDAQ:NFLX) are down 2.9% at $91.05, amid lingering concerns about subscriber retention. Nomura yesterday cut its price target on NFLX, and analyst Anthony DiClemente estimated that 480,000 domestic subscribers could abandon ship in the wake of recent price hikes, though he said Nomura remains positive on NFLX over the longer term. Separately, Netflix last night confirmed a massive service failure -- and sparked a near collective panic attack on Twitter -- though the problem was resolved within a couple of hours. Against this backdrop, NFLX options volume is accelerated today, with some traders betting on more downside by week's end.

Roughly 41,000 NFLX puts have changed hands already today -- 1.3 times the average afternoon pace. Most active is the weekly 6/24 92-strike put, which has seen apparent buy-to-open action. By purchasing the puts to open, the buyers expect NFLX to extend its retreat south of $92 through Friday's close, when the weekly options expire.

However, put buying marks a change of pace for NFLX options traders. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 1.52 stands higher than 89% of all other readings from the past year. In simpler terms, options traders have initiated bullish bets over bearish at a much faster-than-usual clip during the past two weeks.

What's more, near-term traders are buying NFLX options at a relative discount. The equity's Schaeffer's Volatility Index (SVI) of 32% is higher than just 4% of all other readings from the past 12 months, indicating historically attractive short-term options premiums right now.

On the charts, Netflix, Inc. (NASDAQ:NFLX) has surrendered about 31% since hitting an all-time high of $133.27 in December. The equity has seemingly found a foothold atop its ascending 20-month moving average, with rebound attempts stalling at its 10-month trendline.

NFLX Monthly Chart June 21


Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


Now is the time to join our thriving community of Event Traders who consistently profit from every earnings season. With this discounted subscription opportunity, you'll stay ahead of the curve and seize opportunities others miss. Do not let Q3 earnings season pass you by – subscribe now and supercharge your portfolio with expert insights that turn market reactions into profit-generating opportunities!! Don't waste another second... join us right now before the next trade targeting +200% is released!