I was originally going to analyze $Netflix(NFLX)$ earnings report, but after reviewing the option chain, I couldn't find any meaningful insights. Option trading volume is not at yearly lows, but it's close to the bottom, with almost no institutional activity on the large order side. Based on historical volatility, there should have been some straddle trading, but there wasn't any. The only two large orders that looked like earnings bets were outright purchases of put options: $NFLX 20240510 520.0 PUT$ and $NFLX 20241220 380.0 PUT$ . Meanwhile, all the fundamental analysis articles about Netflix were bullish, including analyst expectations, and Morgan Stanley even raised their price target.
The lack of trading itself is a signal. Why does the option market performance contradict the positive news and hype? There could be three possible reasons. First, despite the positive news, Netflix has reported declines for three consecutive years in April, so historical patterns may be more reliable absent a major paradigm shift in their business. Second, expectations of a broader market pullback may be prompting traders to lean bearish ahead of earnings, since these bets were placed a week in advance and stock movements are more likely to follow the broader market direction. Third, option prices are expensive, and options expiring in the current week are relatively cheaper, so despite high implied move levels priced into earnings, there's no need to buy too early - in fact, Netflix stock has been range-bound between $610-630 this week.
Essentially, the market views the risk/reward of trading Netflix options ahead of earnings as unfavorable. I also think there are more opportunities after the earnings report, whether it's a surge or plunge, as the direction will be clearer for analysis. However, I'll keep an eye on any unusual options activity for the current week, though earnings are likely to be a bearish event. For those looking to speculate, you can consider the two put options mentioned above.
It's ironic that while Netflix hasn't lost streaming viewers to AI video, its stock seems to have lost traction compared to AI stocks in the market.
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