Netflix has been on a tear throughout most of the last month, and as the weather starts to get colder across the U.S., and with fears of a second wave of coronavirus lockdowns rising, options traders are betting that the streaming giant is more than capable of keeping its run alive.
Despite a 5% pullback over the last week, the stock is still up more than 12% since mid-September, and the options market is pricing in a post-earnings move that could obliterate this past week’s losses.
“We saw calls outpace puts by [a ratio of] about 2-to-1 today. That actually isn’t that unusual, we’ve been seeing calls outpace puts for the past couple weeks already. Right now, the options market is implying a move of about $49 higher or lower, that’s a little over 9% of the current stock price,” Michael Khouw, chief investment officer at Optimize Advisors, said Monday on CNBC’s “Fast Money.”
That implied move is a full 3% larger than the post-earnings move that Netflix has averaged over the past eight quarters, but even most of Monday’s more bullish trades weren’t all in on a move quite that big.
“One of the more popular trades we saw [Monday], targeting earnings specifically, was the weekly 540/550-call spread,” Khouw said. “Buyers of that call spread were spending about $3.70, risking a very small percentage of the current stock price to make bullish bets.”
This trade breaks even just about 2.7% higher than where Netflix closed Monday’s session, and the stock averages a post-earnings move of 6% in either direction. A move like that would likely represent a good earnings report from the streaming titan, but not quite the 9% move that the overall options market is pricing in.
Netflix was slightly lower in Tuesday’s session.