(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NFLX.)
Netflix Inc. (NFLX) stock could rise nearly 17 percent by the spring of 2018, based on the options trading set to expire on April 20.
Shares of the streaming media company have recently struggled to move higher since the company posted its quarterly results in mid-October. But the options market and technical analysis suggest Netflix could be on the rise, driven by international subscriber growth, despite the rise of increasing domestic competition.
The long straddle options strategy for expiration on April 20, using the $195 strike, suggest a rise or fall in Netflix's stock price of nearly 18 percent. The cost to buy one call and put is about $35, giving the stock a trading range of roughly $160 to $230.
But exploring the options chain, one can see that the $230 calls that are trading at $5.95 show an open interest of about 2,000 contracts, and suggest a break-even price of $236.
The put side of the equation has a much lower amount of open interest presently. It suggests some traders are betting Netflix stock will soon rise again, to a price of $230, or 17 percent, from its current price of approximately $196.75.
Netflix will likely face more competition domestically as more players enter the streaming-content business. Recently, Disney announced it would begin a streaming-content business and announced it would cut ties with Netflix.
There has been speculation that Apple could also begin offering streaming content soon. This is in addition to players already in the space, like Amazon and Hulu. (See more: Disney Streaming Service to Undercut Netflix Price.)
Strong Technical Chart
Despite the potential headwinds, the technical chart for Netflix indicates the shares could be on the rise. The stock has been able to hold the $190 technical support level and has now re-entered its long-term trading channel.
The support region at $190 appears to be very strong, as it was created from the previous highs in the stock back in July and September 2017. With strong support in place and the stock back into the trading channel, there's a path for the stock to continue to rise.
Despite the potential increase in competition, signs suggest that Netflix stock could have an excellent start to 2018.
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.