Netflix options turn bullish ahead of earnings after yearlong slide
Calls outpaced puts before Netflix reports results, even as the stock remains down nearly 20% this year and engagement concerns persist.
By Sarah Jenkins · Chief Macro Economics Correspondent
· 3 min read
Options traders are positioning for a potential rebound in Netflix shares before the company reports earnings on Thursday, despite a year-long decline and a nearly 20% fall in the stock this year. The shift comes after Netflix sold off following each of its past four earnings releases, a pattern that has raised the stakes around the next update.
ThinkOrSwim data showed call volume was twice put volume on both Friday and Monday, with nearly three calls bought for every put by midday Monday. In options markets, a call gives the holder the right to buy shares at a set price, while a put gives the holder the right to sell. Heavy call buying can reflect demand for upside exposure, although it can also be used as part of hedging or spread strategies.
Another active trade pointed in the same direction. Traders were selling at-the-money puts, according to the data cited. A put seller collects premium and takes on the obligation to buy the stock at the strike price if assigned, a structure that can benefit if the shares hold steady or rise, while leaving the seller exposed if they fall below the strike.
Netflix shares were trading around $75, close to the level where the stock stood in February when the company ended its pursuit of Warner Brothers Discovery. CNBC quote data showed Netflix at $74.59, up 1.66%, at 12:56 p.m. EDT.
The level has technical significance for some market participants. Todd Gordon, founder and chief investment officer at Inside Edge Capital, said in an email that Netflix is testing both a rising 200-week moving average and the roughly $70 area that previously acted as resistance before becoming a breakout level in late 2021. He said a hold above that support zone could make the stock worth renewed attention.
Options pricing suggests investors are bracing for a move broadly in line with recent history. Cboe LiveVol data indicated the market was implying a 7.6% swing after earnings, compared with an average realised move of 7.4% over the past year. Netflix declined after each of its last four reports, following gains after the previous three.
Engagement questions remain
The options activity comes as some media analysts point to weaker momentum in viewing. Nielsen data showed Netflix’s share of total television viewing fell to its lowest level in more than a year. The company has not produced a major breakout programme in the most recent quarter, according to media watchers cited by CNBC.
Rich Greenfield, co-founder and TMT analyst at LightShed Partners, said in a text that Netflix has not had a breakout hit this year. He said Nielsen figures show the company is increasing engagement in the United States, but that viewership per subscriber has slipped modestly as subscriber growth continues. Greenfield said newer users on ad-supported plans may watch less than longer-standing ad-free customers, while competition has also increased.
Monday’s busiest listed contract by volume was the $75 put expiring Friday. SpotGamma data showed one large seller collected just under $150,000 by selling 500 of those puts. Of about 20,000 transactions in that contract on Monday, roughly 15,000 were likely sales, according to SpotGamma.
The concentration in short-dated contracts leaves the stock sensitive to both the earnings result and the market’s interpretation of subscriber trends, engagement and advertising progress. The options data show a more constructive setup among traders, while the company still faces investor scrutiny after four consecutive post-earnings share declines.
This story draws on original reporting from CNBC.
