Put Volume Pops After New Netflix Downgrade

Puts have have already doubled the average intraday rate this morning

Managing Editor
Dec 10, 2019 at 10:55 AM
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Streaming giant Netflix Inc (NASDAQ:NFLX) is struggling this morning, 2% lower at $296.43, after becoming the subject of one of Needham's latest bear notes. Analyst Laura Martin downgraded the equity to "underperform" from "hold," saying increased competition from rival streaming services could force a loss of around 4 million premium U.S. subscribers in 2020. Even further, to maintain traction alongside competitors Disney+ and Apple TV+, the firm believes Netflix will need to offer a lower-priced service.

Today's bear note just echoes a recent trend toward Netflix stock. The equity was recently slammed with a downgrade to "underperform" at Wells Fargo on Nov. 25, with the firm expressing concern over subscriber growth. However, nearly 70% of following analysts still maintained a "buy" or better recommendation heading into today, even with the equity down 17% over the past nine months.

Looking deeper, near-term open interest is unusually put-heavy on Netflix stock at the moment. This is according to its Schaeffer's put/call open interest ratio (SOIR) of 1.08, which ranks in the 82nd annual percentile. More than 35,000 put options have exchanged hands this morning, twice the expected rate. Most popular are the weekly 12/13 290- and 295-strike puts, where new positions are being initiated.

Further, options premium looks relatively attractive on NFLX at the moment. This is per the security's Schaeffer's Volatility Index (SVI) of 30%, which sits in the 6th percentile of its annual range. This means short-term options are pricing in extremely low volatility expectations right now.


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