It’s earnings season, everyone. The first FAANG name up is Netflix, Inc. (NASDAQ:NFLX), set to release its quarterly report after the close tomorrow, April 16. Ahead of the event, NFLX call options have been flying off the shelves lately, and the shares just flashed a historically bullish signal on the charts.
In fact, the equity showed up on Schaeffer’s Senior Quantitative Analyst Rocky White’s list of stocks that have attracted the highest total options volume during the past 10 days, with names highlighted in yellow new to the list. Per the chart below, 577,631 NFLX calls were exchanged over this two-week time frame, as opposed to 394,317 puts.
The good news for options traders is that NFLX sports relatively inexpensive short-term option premiums right now, even with earnings on the horizon. The stock’s Schaeffer’s Volatility Index (SVI) of 43% is higher than just 23% of all other readings from the past year, suggesting Netflix’s near-term options are pricing in relatively low volatility expectations at the moment.
The FAANG name has a mixed earnings history, with the stock closing higher the day after four of the last eight earnings. Over the past two years, the shares have swung an average of 6.4% the day after earnings, regardless of direction. This time around, the options market is pricing in a higher-than-usual 11.9% swing for Wednesday’s trading.
Meanwhile, Netflix stock’s recent pullback — partially attributable to competition concerns surrounding Walt Disney’s (DIS) new streaming service — could be a buying opportunity, if history is any guide. Specifically, NFLX closed Friday’s session within one standard deviation of its 80-day moving average, following a lengthy stretch above this trendline. There have been six similar pullbacks in the past three years, according to data from Schaeffer’s Senior Quantitative Analyst Rocky White, and one month later, NFLX was up an average of 7.8% and was positive 83% of the time.
At last check, the security was down 1.8% to trade at $345, set to breach recent support in the $350 neighborhood. So another 7.8% jump from current levels would put the stock just under $372. However, the $370-$380 region has acted as a stiff ceiling for NFLX in 2019.