Netflix Puts Popular As Earnings Loom

The FAANG stock has shed 40% since May 1

by Patrick Martin

Published on Oct 7, 2019 at 1:05 PM

The shares of Netflix Inc (NASDAQ:NFLX) are higher today, up 1.2% to trade at $273.97, shaking off a price-target cut to $300 from $380 at Evercore. The analyst in coverage noted that the streaming field is becoming crowded, and due to Netflix's pricing, could be stuck in a "race to the bottom."

The analyst caution over Netflix stock is well-founded considering its recent struggles. Since a May 1 high of $385.99, the shares have shed 40%, with their descending 30-day moving average containing breakouts. While Netflix stock is clinging to its year-to-date breakeven level, it has shed 26.7% in the last three months, and could face more tailwinds next month when Walt Disney (DIS) launches its Disney+ streaming service.

MAO NFLX

Also weighing on Netflix could be the company's third-quarter earnings report, set for after the close on Wednesday, Oct. 16. Looking at NFLX's earnings history, the stock has tended to struggle in the immediate aftermath of its results. Specifically, the equity has closed lower the day after earnings five times over the past two years, including the past three quarters in a row, and a 10.3% drop back in July. This time around,  the options market is pricing in a one-day, post-earnings swing of 13.7%, regardless of direction, compared to an average post-earnings move of 5.9% over the past two years.

Options traders have come out of the woodwork lately ahead of the event. The stock just showed up on Schaeffer's Senior Quantitative Analyst Rocky White's list of stocks that have attracted the highest options volume during the past 10 days, with names highlighted in yellow new to the list. In the last two weeks, roughly 637,474 calls have changed hands on NFLX, compared to 613,645 puts.

MAO Oct 7

Options traders have started to target puts in recent weeks. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), NFLX's 10-day put/call volume ratio of 1.04 ranks 2 percentage points from an annual high, meaning puts have been bought to open relative to calls at a quicker-than-usual clip.

 

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