Netflix: traders bet on a rebound after four quarterly disappointments
Options traders are betting heavily on a Netflix rebound ahead of its quarterly results. Call volume has doubled put volume, while the stock tests a key technical support at $70, a level that previously triggered an 80% rally.
As Netflix reports earnings this Thursday, options traders are adopting a decidedly bullish tone, despite a year of decline and four consecutive disappointments. The stock, which has fallen nearly 20% since January, sees call volume outpacing put volume by a ratio of three to one, according to ThinkOrSwim data. One of the most popular trades is selling at-the-money puts, a sign that the market anticipates a floor.
Netflix tests major technical support at $70, a historical reversal level
At around $75, Netflix is trading at a level comparable to February, when it abandoned its proposed acquisition of Warner Bros. Discovery. It was precisely around $70 that the stock began a spectacular 80% rebound in 2021, after a prior collapse. "Netflix is currently testing its 200-week moving average as well as the $70 resistance level that became support in late 2021," explains Todd Gordon, founder and CIO of Inside Edge Capital, in an email. "If this technical support at $70 holds, it might be time to change the channel and come back to NFLX."
Implied volatility and expectations after earnings
Options pricing implies a 7.6% swing after earnings, versus a realized average of 7.4% over the past year, according to Cboe LiveVol data. Netflix has fallen after each of its last four releases, after having risen in the previous three.
Lack of major hit and audience erosion: Netflix's challenge
Media observers point to a lack of engagement: Netflix has not produced a blockbuster hit this quarter. According to Nielsen, its TV audience share hit its lowest level in over a year. "Netflix hasn't had a hit this year," confirms Rich Greenfield, co-founder and TMT analyst at LightShed Partners. "Nielsen data shows that engagement in the US is growing, but subscriber growth means that viewing per subscriber is slightly down. New users on the ad-supported plan probably watch less than old ad-free subscribers, which partly explains the phenomenon, as does increasing competition."
The most active contract on Monday was the $75 strike put expiring Friday, driven by a single seller who pocketed nearly $150,000 by selling 500 of these puts.
