Netflix, Inc. (NFLX) Options Active Ahead of Earnings

Netflix, Inc. (NFLX) option players are anticipating a bigger-than-usual post-earnings move for the streaming stock

Jan 18, 2017 at 3:09 PM
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Netflix, Inc. (NASDAQ:NFLX) is making headlines ahead of tonight's earnings report. The streaming service announced it has picked up Jerry Seinfeld's "Comedians in Cars Getting Coffee," of which it will stream and produce an additional 24 episodes. Heading into tonight's earnings, it looks as though NFLX option players are expecting a bigger-than-usual move in either direction.

At last check, NFLX is down 0.7% at $131.90. Since February, NFLX shares have managed to add 65% -- mostly thanks to a huge post-earnings bull gap in October -- and the stock notched a new record high of $135.40 yesterday. The shares have also enjoyed the support of their 10- and 20-day moving averages since late November.

Drilling down, NFLX calls and puts are trading at about the same rate today, with roughly 72,000 of each crossing the line so far. NFLX options are trading at nearly two times their average intraday volume, with the 10 most active options expiring at the end of this week. In particular, the January 2017 132-, 135-, and 140-strike calls have seen buy-to-open action, according to the International Securities Exchange (ISE), indicating traders are expecting higher highs by the time the options expire this Friday.

Widening the lens, near-term option players have rarely been more put-skewed over the last 12 months, with NFLX's Schaeffer's put/call open interest ratio (SOIR) of 1.15 sitting at an annual peak. What's more, NFLX's 10-day put/call volume ratio at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 0.90 sits in the top 82% of its annual range, indicating a larger-than-usual appetite for long puts over calls. During this time period, the June 100 put was the most added option, with notable buy-to-open activity. However, considering NFLX's recent surge, this could be attributable to shareholders seeking to hedge their investments with out-of-the-money puts.

But despite NFLX's quest for record highs, pessimism prevails. Short interest in the shares accounts for 5.7% of NFLX's float, which would take traders a week to cover, at NFLX's average daily volume -- plenty of fuel for a short squeeze, should NFLX report another solid quarter. Elsewhere, some of the brokerage bunch also remain skeptical, with 15 of 33 rating the shares a "hold" or worse -- ample room for upgrades. However, Brean Capital issued a note in support of NFLX earlier today, suggesting NFLX could hit 230 million global subscribers.

J.P. Morgan Securities recommends owning volatility in NFLX ahead of earnings. In fact, NFLX shares have enjoyed a one-day post-earnings move of more than 10% in six of the past eight quarters. This time around, Netflix, Inc. (NASDAQ:NFLX) option players are pricing in a 14.9% single-day move in either direction -- bigger than the stock's average one-day swing of 13.4% after its last eight earnings reports.  

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