Apple Rumors Spark Fire Under Netflix, Inc. (NFLX) Call Players

Netflix, Inc. (NASDAQ:NFLX) is seeing an influx of call volume amid rumors Apple Inc. (NASDAQ:AAPL) could be a potential suitor

Dec 8, 2016 at 2:17 PM
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Just one day after reports surfaced that Apple Inc. (NASDAQ:AAPL) is in movie-streaming discussions with several major studios, rumors are circulating today that the iPhone parent could be interested in Netflix, Inc. (NASDAQ:NFLX) as a possible takeover target. Netflix is hardly a stranger to buyout buzz, and although the stock was up 0.8% at its intraday peak, shares of NFLX were last seen down 2.3% at $122.46. Nevertheless, calls are trading at an accelerated clip in NFLX stock's options pits, with the weekly 12/9 series seeing most of the action.

By the numbers, 62,220 NFLX calls have traded so far -- 1.8 times the average intraday pace -- compared to 31,250 puts. The stock's weekly 12/9 124-, 125-, and 126-strike calls are most active, with a collective 17,886 contracts having changed hands. There looks to be a mix of buy- and sell-to-open activity occurring at each strike. Those purchasing new positions are betting on NFLX to surge above the strike price by tomorrow's close -- when the weekly options expire -- while those writing to open the calls expect the strikes to serve as a short-term ceiling.

Today's activity is nothing new for NFLX, considering the stock has been heavily targeted by weekly options traders in recent weeks. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, 200,809 weekly calls have traded on NFLX in the last 10 sessions, compared to 152,994 weekly puts. Including both weekly and monthly options, NFLX has seen 329,657 calls cross the tape in the last two weeks, versus 235,452 puts.

Drilling down, the stock's weekly 12/9 125-strike call has seen the biggest rise in open interest over the past two weeks, with 2,928 contracts added. Close behind is the December 129 call, with 2,840 new positions initiated in the last 10 sessions. More broadly, the December 130 call is NFLX's top open interest position, with 20,830 contracts currently outstanding. According to data from the major options exchanges, the bulk of the action has been of the buy-to-open kind.

Technically, NFLX has recently struggled against the $129 mark, which currently coincides with its year-over-year breakeven level. Specifically, the stock spent the last full trading week of October butting up against this level, after notching an annual high of $129.29 on Oct. 24. And while Netflix, Inc. (NASDAQ:NFLX) pulled back during the post-election tech sell-off, it filled this bearish gap on Tuesday -- amid some bullish brokerage attention and reports of a possible set-top box partnership with Charter Communications, Inc. (NASDAQ:CHTR) -- to trade back above early November support near $122.

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