Netflix, Inc (NASDAQ: NFLX) Shares rose 52.6% last year, and some massive options trading on Tuesday suggest that the shares are on the radar of at least one major broker.
Netflix negotiations: On Tuesday, Benzinga Pro subscribers received several alerts related to major Netflix options trading. Seven of the negotiations stood out for their size and time:
Between 12:21 pm ET and 12:26 pm ET, probably a single dealer bought and sold a large number of Netflix call options with an exercise price of $ 570 expiring on June 18. The contracts were bought and sold close to the bid and ask prices within a $ 1.50 range of $ 48.50.
In all, the trader bought 1,426 purchase options from Netflix close to the sale price and sold 820 of the same contracts in a five-minute period. Another 882 contracts were traded near the middle of the bid-ask spread, deals that are normally considered neutral.
Why it matters to Netflix investors: Even traders who limit themselves exclusively to stocks often monitor the activity of the options market closely for exceptionally large trades.
Given the relative complexity of the options market, large options traders are usually considered more sophisticated than the average stock trader.
Many of these big options traders are wealthy individuals or institutions that may have unique information or theses related to the underlying stocks.
Unfortunately, stock brokers often use the options market to hedge against their larger stock positions, and there is no foolproof way to determine whether an options trade is an autonomous position or a hedge.
In that case, given the relatively large size and timing of call purchases on Tuesday, they could certainly be an institutional hedge.
More Netflix Upside Ahead? The pandemic did wonders for the growth of Netflix subscribers, including another 8.5 million global paid subscribers in the fourth quarter. Netflix investors were also pleasantly surprised when the company said it could consider implementing a stock buyback program in the near future, now that it appears to have become consistently positive in cash flow.
Investors concerned about Netflix’s ability to fend off a wave of new video streaming competition from Amazon.com, Inc. (NASDAQ: AMZN), Walt Disney Co (NYSE: DIS) and others have probably been extremely impressed by the resilience of Netflix’s growth trajectory in recent quarters. Netflix is also looking at paralleling some extremely difficult year-to-year comparisons in 2021, which could scare the market.
Benzinga’s opinion: Subtracting call options sold close to the offer from options bought close to the offer results in a potential net purchase of 606 Netflix purchase contracts for a price of around $ 48.50, an optimistic bet of $ 2.9 million . It is difficult to determine whether trades executed near the midpoint of buying and selling have been added to or subtracted from that net long position.
Assuming the trader ended up buying net on Netflix, the break-even price for the call options in question is around $ 618.50, suggesting a further 10.7% increase in the next four months.
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