Netflix shares have fallen almost 20% this year, but options traders are betting on a rebound. The company reports earnings Thursday, and the trading action looks bullish. Call options - bets that the stock will rise - are being bought much more often than put options, which profit from declines.
During the final two trading days before earnings, the number of call options purchased was twice the number of put options on both Friday and Monday. By midday Monday, that ratio jumped to almost three calls for every one put, according to data from ThinkOrSwim. One seller collected just shy of $150,000 in premium by selling 500 put options at the $75 strike price expiring Friday. SpotGamma data indicates that out of the 20,000 trades in that put option on Monday, an estimated 15,000 were sell orders.
Put options give the buyer the right to sell shares at a set price. The seller of those puts is betting the stock stays above $75.
Netflix has not had a major breakout hit this year. Rich Greenfield, a TMT analyst and co-founder of LightShed Partners, commented, "Netflix has not had a breakout hit this year." Netflix's share of television viewership dropped to a level not seen in more than a year, according to Nielsen data. Greenfield added that with subscriber growth, viewership per subscriber is down modestly. He pointed to a shift toward ad-supported users, who tend to view less content than long-time ad-free subscribers, as well as rising competition.
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The stock currently trades around $75. Todd Gordon, the founder and CIO of Inside Edge Capital, highlighted a critical support level at $70. That price was a resistance level in late 2021 - meaning the stock struggled to break above it.
Now it has become a support level where buyers step in. "Netflix is now testing a rising 200-week moving average as well as the $70 prior resistance-turned-breakout level from late 2021," Gordon said. "Should this $70 technical support hold, it may be time to consider changing the channel back to NFLX."
Options traders are pricing in a 7.6% swing after earnings. That's slightly above the 7.4% average swing recorded over the last 12 months, per Cboe LiveVol data. But the pattern has been grim: Netflix stock has fallen after each of the last four quarterly reports.
Before that, it rose three quarters in a row. The upcoming report will test both the $70 support and the bullish options bets.
The recent sell-off and the options activity reflect a market trying to gauge whether Netflix can reaccelerate subscriber growth in a competitive streaming landscape. The company's ad-supported tier and password-sharing crackdown have provided near-term boosts, but sustaining momentum remains uncertain.
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