Option Bears Are Eyeing This FAANG Stock as Earnings Loom – Schaeffers Research (blog)

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Earnings season is finally upon us, with bank stocks kicking things off today. FAANG member Netflix, Inc. (NASDAQ:NFLX) is set to report second-quarter earnings on Monday, and investors are keeping their eye trained on the TV streaming giant, which has a choppy history in the earnings spotlight. Below, we will take a look at Netflix stock’s performance on the charts, and how NFLX options traders are speculating ahead of Monday’s earnings release. 

Netflix stock has turned in a solid year, and is currently up 1% to trade at $159.79. NFLX shares have recovered nearly 11% since their early July lows — the result of a broader tech dip — and are now within about 7 points from their June all-time high of $166.87. The shares retook their 80-day moving average last week, which has acted as support for NFLX over the past year, ushering the stock more than 60% higher.

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However, post-earnings reactions have been mixed for shares of the streaming giant. The stock dropped 2.6% the day after its last earnings release, but prior to that rallied 3.9% and 19%, respectively, in the session after reporting earnings. One year ago, NFLX shares sank 13.1% the day after second-quarter earnings were unveiled. After the last eight earnings reports, Netflix stock’s reactions have been evenly split between positive and negative, and the security has moved an average of 9.8% in either direction.

Despite Netflix stock’s long-term uptrend, pessimism still surrounds the FAANG stock. Over 26 million shares of NFLX are dedicated to short interest, representing nearly a week’s worth of pent-up buying demand, at the stock’s average pace of trading. What’s more, 11 analysts covering the stock still rate it a “hold” or “strong sell.” Should Netflix beat earnings expectations next week, a short squeeze or a round of upbeat analyst attention could add fuel to NFLX’s fire.

According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), NFLX has a 10-day put/call volume ratio of 0.96, which ranks in the 86th percentile of its annual range. This suggests options buyers have picked up Netflix puts over calls at a faster-than-usual clip during the past two weeks. A solid round of earnings could also send options bears scrambling for cover.

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