New High for Netflix Stock Brings Options Traders On Board

Netflix, Inc. (NFLX) options traders have been relatively absent of late, though volume is crossing at a faster-than-usual clip today

Mar 16, 2017 at 2:13 PM
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Options volume is trading at a faster-than-usual pace on Netflix, Inc. (NASDAQ:NFLX) today, with the stock fresh off a record high of $146.50. By the numbers, around 42,000 calls have changed hands on Netflix stock, compared to 33,000 puts. The March 146 call is NFLX's most active option, where it looks like traders may be buying and selling to open new positions. Those purchasing the calls expect NFLX shares to surge back above $146 by front-month options expiration at tomorrow's close, while those writing the calls are betting on the strike to serve as a near-term ceiling.

More broadly speaking, options traders have shown a preference for NFLX puts over calls. Specifically, there are currently 373,484 puts outstanding, compared to 303,419 calls. However, this should be taken with a grain of salt, considering these levels rank in the low 28th and 13th percentiles of their respective annual ranges, meaning Netflix options traders have been relatively absent of late. For the sake of comparison, put and call open interest hit an annual high on Oct. 21, when 602,384 puts and 583,544 calls were open on NFLX stock.

Nevertheless, it seems to be an opportune time to purchase premium on the stock's near-term options. While Netflix stock's 30-day at-the-money implied volatility of 25% ranks lower than 92% of all comparable readings taken in the past year, its Schaeffer's Volatility Index (SVI) of 37% arrives in the 25th percentile of its annual range. Summing it all up, low volatility expectations are being priced into the security's short-term options -- a potential boon to premium buyers.

Outside of the options pits, sentiment toward NFLX is mixed. Among analysts, 61% of those covering the shares maintain a "buy" or better rating, while the average 12-month price target of $150.34 stands in uncharted territory. Elsewhere, though short interest accounts for just 5.7% of the equity's available float, it would take more than six sessions to cover these bearish bets, at Netflix stock's average pace of trading.

Looking at the charts, the FANG stock has been a technical standout since bottoming at an annual low of $84.50 in late July, up 71.7% to trade at $145.15. What's more, if past is precedent, Netflix shares could be poised to extend their record-setting run in the near term, given their recent pullback to the rising 40-day moving average. Per data from Schaeffer's Senior Quantitative Analyst Rocky White, in the 10 other times this signal has flashed in the last three years, shares of Netflix, Inc. (NASDAQ:NFLX) have gone on to average a 21-day gain of 2.8%, and have been positive two-thirds of the time.

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