Netflix, Inc shares are up 52.6% in the past year, and some massive option trades on Tuesday suggest the stock is on the radar of at least one huge trader.
The Netflix Trades:On Tuesday,Benzinga Prosubscribers received several alerts related to unusually large Netflix option trades. Seven of the trades stood out because of their size and timing:
Between 12:21 p.m. ET and 12:26 p.m. ET, likely a single trader bought and sold a massive amount of Netflix call options with a $570 strike price expiring on June 18. The contracts were bought and sold near bid and ask prices within a $1.50 range of $48.50.
In all, the trader bought 1,426 Netflix call options near the ask price and sold 820 of the same contracts within a five-minute stretch. Another 882 contracts were traded near the middle of the bid-ask spread, trades typically considered neutral.
Why It’s Important For Netflix Investors:Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades.
Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge.
In this case, given the relatively large size and timing of the call purchases on Tuesday, they could certainly be an institutional hedge.
More Netflix Upside Ahead?The pandemic has worked wonders for Netflix’s subscriber growth, including another 8.5 million global paid subscribers added in the fourth quarter. Netflix investors were also pleasantly surprised when the company said it could consider implementing a share buyback program in the near future now that it appears to have become consistently cash flow-positive.
Investors concerned about Netflix’s ability to fend off a wave of new streaming video competition fromAmazon.com, Inc.,Walt Disney Co and others have likely been extremely impressed by the resiliency of Netflix’s growth trajectory over the past several quarters. Netflix is also staring down the parallel of some extremely difficult year-over-year comparisons in 2021, which could spook the market.
Benzinga’s Take:Subtracting the calls sold near the bid from the calls purchased near the ask results in a potential net purchase of 606 Netflix call contracts for a price of around $48.50, a potentially $2.9-million bullish bet. It’s difficult to determine whether the trades executed near the bid-ask midpoint added or subtracted from that net long position.
Assuming the trader ended up net long on Netflix, the break-even price for the calls in question is about $618.50, suggesting another 10.7% upside over the next four months.
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