Optimism Grows On Netflix, Inc. (NFLX) Ahead of Tough Trading Week

Although Netflix, Inc. (NFLX) is staring down historical headwinds, analysts are waxing optimistic on the streaming stock, while call buying builds

Karee Venema
Dec 21, 2016 at 11:38 AM
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Netflix, Inc. (NASDAQ:NFLX) shares are up 1.3% at $126.72, as traders disregard news of a now-resolved hack of one of the streaming giant's Twitter Inc (NYSE:TWTR) accounts. Instead, the stock seems to be reacting to Stifel's price-target hike to $150 from $140, record-high territory for NFLX. The brokerage firm said expectations for a year-over-year decline in subscriber growth is an "overreaction to temporary issues the company faced in 2016," and that an expanded original content catalog increases the stock's value proposition -- with the latter outlook echoed by Loop Capital, which reiterated its $151 price target. Today's options traders appear to be taking the glass-half-full approach to NFLX stock, too, with calls trading at 1.6 times the average intraday pace.

Drilling down, the weekly 12/23 options series is hot, with buy-to-open activity detected at the 125-, 127-, and 128-strike calls -- NFLX's three most active options. If this is the case, the goal of the call buyers is for NFLX to settle the week north of the respective strike prices. Should the calls expire out of the money, though, the most the any group stands to lose is the initial premium paid.

Widening the scope reveals today's penchant for long calls just echoes the withstanding trend seen in the stock's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 63,856 calls on NFLX, compared to 33,497 puts. What's more, the resultant call/put volume ratio of 1.91 ranks in the 99th annual percentile, meaning long calls have been initiated relative to puts at a near-annual-high clip.

The optimism appears to be growing outside of the options arena, as well. Short interest declined nearly 13% in the two most recent reporting periods to 26.8 million shares -- the lowest amount since July 2015. Plus, the majority of the 33 analysts covering NFLX maintain a "buy" or better rating.

Looking at the charts, it's easy to see why sentiment is tilted toward the bullish side. For starters, NFLX is the only one out of its fellow "FANG" stocks to have outperformed the broader S&P 500 Index (SPX) over the past three months. What's more, even though shares of Netflix, Inc. (NASDAQ:NFLX) are staring down historical headwinds in next week's trading, the stock is up almost 29% this quarter, and is 2 percentage points away from taking out its Oct. 24 annual high of $129.29.

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