Netflix Options Traders Are Looking for a Big Rebound

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Netflix Options Traders Are Looking for a Big Rebound

(Note: The writer of this fundamental analysis is a portfolio manager and financial writer. He and his customers possess NFLX stock.)

Options traders predict that Netflix Inc. (NFLX) stock will increase by more than 10% by mid-June. It would bring the stock close to its record highs, which were about $334 per share. The traders’ optimistic wagers are supported by a technical analysis of the Netflix chart, which predicts a rise in share price to above $320.

Even if Netflix is presently selling at roughly $295, almost 11% below its all-time high, it has still increased by more than 53% in 2018. Over the last year, shares have more than doubled as the number of overseas subscribers has skyrocketed, driving the stock to new highs. In contrast, the S&P 500 has only increased by 12.5%.

NFLXcdata by YCharts

Bullish Bets

The June 15 expiry date of the long straddle options strategy implies that shares may increase or fall by around 16% from the $290 strike price, placing the company in a wide trading range of between $243 to $337. But with roughly 1,600 open calls compared to about 1,100 open puts, calls slightly outnumber puts. It implies that more options traders are placing large bets that Netflix shares will increase by expiry.

A Rise to $322

However, by scanning the option chain from top to bottom, one can see that there is a sizable wager in place at the $300 strike price, with 5,000 open call contracts. The shares of Netflix would need to grow by about 10% from their present price, to $321.50, where the calls are trading, simply to break even. The wager has a large financial value of almost $10.75 million. In addition, since March 26 the open interest at that strike price has been continuously increasing.

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(Trader Alert)

Bullish Charts

According to the chart, Netflix stock is presently climbing over a critical technical resistance level around $295.50 after having fallen to a technical support level at $273. It may cause shares to rise back to $323. Another optimistic sign is that the relative strength index has resumed its upward trajectory.

When Netflix releases its first-quarter 2018 earnings on April 16, that will be the next major test for the firm and will decide whether the stock rises or falls. Whether the option traders record gains or losses will undoubtedly depend on it.

The owner and manager of the actively managed, long-only Thematic Growth Portfolio atMott Capital Management LLC, a registered investment advisor, is Michael Kramer. Kramer often invests in equities and retains them for three to five years. For more on Kramer’s background and assets, go here. The information provided is only for educational reasons and is not meant to be a solicitation or an offer to buy or sell any particular securities, investments, or financial strategies. Unless otherwise noted, investments entail risk and cannot be guaranteed. Before putting any of the strategies described here into action, be sure to speak with a skilled financial advisor and/or tax expert first. The adviser will offer a list of all suggestions made in the previous year upon request. Performance in the past does not guarantee performance in the future.

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