Netflix’s Unusual Options: Seizing Opportunity Before Volatility Shifts

In the world of investing and trading, unusual options activity can sometimes spark concern among retail investors. This was the case recently with streaming giant Netflix (NFLX). While some transactions in the derivatives market suggested a negative outlook for NFLX stock, a closer look reveals a potential opportunity for those willing to go against the grain.

As we headed into the long weekend, the total volume of options trading for NFLX reached 164,872 contracts, a significant increase compared to the one-month average. Interestingly, there were more put options (76,931 contracts) traded than call options (87,941 contracts), resulting in a put/call ratio of about 0.875. Typically, a lower ratio would indicate more call options being purchased than puts, but it’s essential to remember that options can be both bought and sold.

To gain a clearer insight, it’s recommended to consult tools like Barchart’s options flow screener, which focuses on significant block transactions often made by institutional investors. In this case, the net trade sentiment showed a preference for bearish positions, with nearly $4.3 million below parity. Despite this bearish sentiment, it’s crucial to consider the context behind these trades.

One notable bearish transaction involved selling $2.131 million worth of $1,200 Sept. 19 calls. With a bid price of $35.95, this means NFLX stock would need to stay below $1,235.95 at expiration to avoid assignment. However, the amount of money at risk in these transactions suggests that traders may be looking to adjust their positions rather than outright predicting a decline in the stock price.

While the options data from Friday may not have been ideal for NFLX stock, it presents an opportunity for discerning traders. The recent decline in NFLX stock price, coupled with a more substantial decrease over the past six months, could be seen as a potential entry point for investors looking to capitalize on a discount in a powerhouse stock.

By analyzing historical data and current market trends, it’s possible to project potential price pathways for NFLX stock. While the overall skew of expected weekly prices suggests a range, recent market activity has signaled a more specific pathway that traders can consider when making decisions about their positions.

For traders interested in seizing this opportunity in NFLX stock, there are two potential bullish trading strategies to consider. Bull call spreads, which involve buying a call option while simultaneously selling a call at a higher strike price, can help investors benefit from a potential rise in stock price while limiting their risk exposure.

In conclusion, while Friday’s options data for NFLX stock may have raised some concerns, it also presents a unique chance for traders to take advantage of a potential discount and explore bullish trading strategies. By carefully evaluating available information and market trends, investors can make informed decisions that align with their financial goals.