Bernie Schaeffer is a long-standing expert in options trading; in his Schaeffer's Investment Research, analyst Jack Scott looks at recent options activity in Netflix Inc. (NFLX).
Streaming giant Netflix Inc. is seeing some positive movement following a bull note from Wedbush. The firm upgraded the FAANG concern to "outperform" from "neutral," predicting the company is poised to exceed its second-quarter guidance, thanks in large part to staggering the release dates of hit shows such as Ozark and Stranger Things.
Volatility has plagued Netflix stock for most of 2022, with the shares losing nearly 69% year-to-date. Two notable bear gaps within the last five months have NFLX sitting back below the $200 mark for the first time since January 2018.
The first gap occurred after Netflix's fourth-quarter earnings report this January. The company's subsequent trip to the earnings confessional showed a quarterly subscriber loss of 200,000, resulting in the equity's worst session in more than a decade.
Circling back to analyst sentiment, the brokerage bunch is unsurprisingly pessimistic toward NFLX. Of the 30 in coverage, 25 rated the security a "hold" or worse coming into the day, though five still recommend a "strong buy." Meanwhile, the 12-month consensus price target of $338.95 is an 77.4% premium to current levels.
Call traders are targeting NFLX at an elevated clip after the upgrade. In just the first hour of Monday's trading, 31,000 calls have crossed the tape, which is double the intraday average. The most popular contract is the May 200 call, followed by the 225 call from the same monthly series, with new positions being sold to open at both.
A broader look at options traders' sentiment at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows that, while calls outnumber puts on an overall basis, the penchant for bearish bets is notable. In fact, Netflix stock's 50-day put/call volume ratio of 0.80 stands higher than 94% of readings from the past year.
These traders are in luck, too. According to its Schaeffer's Volatility Scorecard (SVS) tally of 87 out of 100, NFLX has consistently realized bigger returns than options traders have priced in over the last 12 months.
