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Netflix Options Show Prospect for Full Reversal of Disney+ Rout

Gregory Calderone
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Netflix Options Show Prospect for Full Reversal of Disney+ Rout

(Bloomberg) -- Options investors are positioning for a post-earnings move in Netflix Inc. shares that could more than recoup the $9 billion in market value wiped out since Walt Disney Co. took the wraps off its streaming-video service.

More than a quarter of Netflix open interest is due to expire in the wake of Tuesday afternoon’s first-quarter release, with bullish calls outweighing bearish puts. Prices imply a 7.3 percent post-earnings move in the shares. A gain of that much would land the stock price about 1 percent above where it was before last week’s Disney+ announcement.

Netflix has historically posted very wide post-earnings price swings, averaging 13 percent since 2008. After the past eight reports, shares have moved 6.4 percent on average, with rallies and declines evenly split at four a piece.

“Shares did see meaningful volatility around earnings in the past, including double-digit moves following four of the eight quarters from 2016 through 2017, and options continue to price in the potential for outsized moves,” Susquehanna International Group derivatives strategist Chris Jacobson said in an interview.

Netflix shares have fallen around 5.5 percent since the Disney analyst meeting where the media giant announced a $6.99 per month offering that would compete directly with Netflix’s core business. On Tuesday, the online streaming provider will get its first chance to respond to the new threat on its first-quarter conference call.

About 27 percent of total Netflix options open interest is set to expire on Thursday, with calls outweighing puts by 24 percent, which on the surface indicates a bullish setup. A closer look at contracts set to expire with strike prices between $325 and $375 shows call options outweighing put options by 8 percent. The stock was trading around $350 on Monday.

Netflix shares are up 30 percent year-to-date, but they’re little changed since mid-January. Current implied volatility is around 108 percent, versus a three-month historical average 44. That places it in the 25th percentile over the last year, but down from the 76th percentile ahead of its fourth-quarter earnings report.

To contact the reporter on this story: Gregory Calderone in New York at gcalderone7@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer

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