Is a Short Squeeze at Hand for Netflix (NFLX)?

09/24/2010 12:01 am EST

Focus: OPTIONS

Elizabeth Harrow

Financial Analyst, Schaeffer's Investment Research, Inc.

DVD rental titan Netflix, Inc. (NFLX) had a heck of a week, up nearly 6% on Wednesday afternoon alone after earlier tapping a new record high of $156.67. The stock has soared more than 167% year-to-date, and options players are responding to NFLX's show of technical strength by scooping up short-term calls.


Click to Enlarge

Total call volume midweek jumped to three times the norm on NFLX, with about 43,000 contracts changing hands. One of the stock's weekly options is the center of attention—NFLX's September 24, 2010 expiration 155-strike call has seen nearly 5,500 contracts trade on open interest of just 1,090 contracts. With volume easily outstripping open interest, it's a safe bet that new calls are being opened here today.

Most of those weekly 155 calls have traded at the ask price, suggesting they were probably purchased. By buying to open these very short-term options, traders are hoping to capitalize on additional gains in NFLX shares through the end of the week. The stock was last seen trading around $156.23, which means those 155-strike calls are already in the money.

If shorts are caught offguard by NFLX's continued quest for new highs, an unwinding of bearish bets could fuel additional upside for the stock. Short interest accounts for approximately 24% of the equity's float, representing a healthy supply of sideline cash.

By Elizabeth Harrow, contributor, Schaeffer’s Trading Floor Blog

Related Articles on OPTIONS