(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NFLX.)
Options traders are betting shares of Netflix Inc. (NFLX) rebound by more than 10%, by the middle of June. It would take the stock to within striking distance of its all-time highs near $334 a share. A technical analysis of the Netflix chart supports the bullish bets by the traders and suggests shares of the online streaming media company could surge to over $320.
Even though Netflix is nearly 11% off its all-time high, currently trading around $295, it is still up over 53% for 2018. Shares have more than doubled over the past year as international subscriber growth has exploded, propelling the stock to record highs. The S&P 500 has risen by only 12.5% by comparison.
The long straddle options strategy set for expiration on June 15, is implying shares could rise or fall by roughly 16% from the $290 strike price, putting the stock in a massive trading range of approximately $243 to $337. But the number of open calls marginally outweighs the number of open puts, with nearly 1,600 calls to only 1,100 puts. It suggests that options traders are betting more heavily shares of Netflix will rise by expiration.
A Rise to $322
But looking up and down the option chain, one can find a significant bet in place at the $300 strike price, with 5,000 open call contracts. With the calls trading at roughly $21.50, shares of Netflix would need to rise to $321.50, an increase of nearly 10% from its current price, just to break even. The size of the bet is large, with a dollar value of about $10.75 million. Additionally, the open interest at that strike price has been steadily rising since March 26.
The chart also shows shares of Netflix are rebounding, after reaching a technical support level around $273 and is now rising above an essential technical resistance level at $295.50. It could lead to shares rebound back toward $323. The relative strength index has also started trending higher again, which is a bullish indication as well.
The next big test for Netflix, which will determine just how high or low the stock goes, will come when the company reports first-quarter 2018 results on April 16. It will surely decide whether the options traders book profits or losses.
Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.