Traders are betting on a comeback quarter for Netflix
After a year-long bear market, a year-to-date decline of nearly 20%, and a sell-off following four of the last four earnings reports, options traders are striking a decidedly bullish tone heading into the period ahead. netflixearnings on Thursday.
According to data from ThinkOrSwim, call volumes doubled in back-to-back sessions Friday and Monday; By midday Monday, the number of calls purchased had nearly tripled. At the same time, one of the most popular transactions was selling at a profit.
Technical drawing may be helpful. Netflix is trading around $75, about the same level as the stock was when Warner Brothers ended its pursuit of Discovery in February. Netflix began a sharp 80% selloff at this level in late 2021 before a multi-year recovery that reached $134 in June last year.
“Netflix is currently testing the rising 200-week moving average as well as the $70 level, which is turning into a breakout from resistance in late 2021,” Todd Gordon, founder and CIO of Inside Edge Capital, said in an email. “If this $70 technical support holds, it may be time to consider changing the channel back to NFLX.”
Option pricing currently implies a 7.6% post-earnings swing, according to Cboe LiveVol data; compared to an average move of 7.4% last year. Netflix shares have fallen after four of their last four reports, after rising three times in a row in their previous three reports.
Media observers noted the lack of engagement as the company has yet to make a major debut in the latest quarter. Netflix’s TV viewing share has reached its lowest level in more than a year, according to Nielsen.
Netflix, YTD
“Netflix hasn’t had a big breakout this year,” LightShed Partners co-founder and TMT analyst Rich Greenfield said in a text. “Nielsen statistics show that engagement is rising in the US, but growth in views per subscriber has declined modestly. New ad-supported users are likely watching less than older ad-free users, so the mix shift likely accounts for some of this, as well as increased competition.”
The most popular contract by volume on Monday was the 75-strike put contract expiring on Friday; That’s thanks in part to a major dealer selling 500 of them, bringing in less than $150,000. According to SpotGamma data, 15,000 of the 20,000 transactions in that put contract on Monday were likely sales.
