Netflix Options Traders Are Looking for a Big Rebound

(Please keep in mind that the author of this fundamental analysis is a financial writer and portfolio manager.) He and his clients possess NFLX stock.)

Options traders are betting shares of Netflix Inc. (NFLX) rebound by more than 10%, by the middle of June. It would take the stock to within striking distance of its all-time highs near $334 a share. A technical analysis of the Netflix chart supports the bullish bets by the traders and suggests shares of the online streaming media company could surge to over $320.

Even though Netflix is nearly 11% off its all-time high, currently trading around $295, it is still up over 53% for 2018. Shares have more than doubled over the past yearas international subscriber growth has exploded, propelling the stock to record highs. The S&P 500 has risen by only 12.5% by comparison.

NFLXcdata by YCharts

Bullish Bets

The long straddle options strategy set for expiration on June 15, is implying shares could rise or fall by roughly16% from the $290 strike price, putting the stock in a massive trading range of approximately $243 to $337. But the number of open calls marginally outweighs the number of open puts, with nearly 1,600 calls to only 1,100 puts. It suggests that options traders are betting more heavily shares of Netflix will rise by expiration.

A Rise to $322

But looking up and down the option chain,one can find a significant bet in place at the $300 strike price,with 5,000 open call contracts. With the calls trading at roughly $21.50, shares of Netflix would need to rise to $321.50, an increase of nearly 10% from its current price, just to break even. The size of the bet is large, with a dollar value of about $10.75 million. Additionally, the open interestat that strike price has been steadily rising since March 26.

(Trader Alert)

Bullish Charts

The chart also indicates that Netflix shares are recovering after hitting a technical support level around $273 and are currently climbing over an important technical resistance level around $295.50. It is possible that shares may recover to $323. The relative strength index has also begun to trend upward, which is a positive indicator.

The next key test for Netflix, which will decide whether the stock moves up or down, will be when the firm publishes first-quarter 2018 earnings on April 16. It will undoubtedly determine whether options traders record gains or loses.

Michael Kramer is the originator and manager of the actively managed, long-only Thematic Growth Portfolio at Mott Capital Management LLC, a registered investment advisor. Kramer normally purchases and keeps equities for three to five years. Click here to see Kramer’s profile and portfolio holdings. The information offered is only for educational purposes and does not constitute an offer or solicitation to sell or buy any particular stocks, assets, or financial strategies. Unless otherwise specified, investments involve risk and are not guaranteed. Before adopting any of the strategies outlined here, contact with a knowledgeable financial advisor and/or tax expert. The adviser will offer a list of all suggestions made in the previous twelve months upon request. Past performance does not predict future performance.

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