| NEW YORK, April 22
NEW YORK, April 22 Options investors expecting a
big move in Netflix shares after the video streaming service
posted earnings didn't get what they wanted, and they're fleeing
en masse on Tuesday.
Headed into Netflix Inc's earnings after the close
of Monday's trading, the expectation was for the stock to move
by about $39 a share, or about 11 percent, by the end of the
week. That's a bit boring by Netflix standards, as the stock has
averaged a move of about 18 percent in the last six quarters the
day after reporting earnings.
However, on Tuesday, Netflix was up just $17.51 or 5 percent
at $366, well short of the usual move, disappointing those who
were looking for a lot of volatility that could carry the stock
close to $400. The heaviest activity in Netflix options expiring
this week was in far out-of-the-money options, contracts that
profit only if the stock's price moves dramatically.
"With the event now out of the way, implied volatility is
imploding, and many of the significantly aggressive
out-of-the-money puts and calls played ahead of earnings have
turned to big losers," said Ryan Detrick, an analyst at
Schaeffer's Investment Research in Cincinnati.
With the chances of a big rally now diminished, traders are
selling options as fast as they can. The busiest weekly call
option contract was the $400 strike, with more than 3,400
contracts traded, but the price has fallen 77 percent to 72
cents a contract from $3.10 on Monday.
For Greg Harmon, chief investment officer of Presidium
Capital in Shaker Heights, Ohio, this worked out profitably -
coming into the earnings report, he had sold far
out-of-the-money put and call options, collecting the premium on
that sale, and bought call options betting on a smaller move.
"The historic move was equal to about $60, so many were
looking for more" volatility, he said.
The action in far out-of-the-money put options (contracts
that bet on a fall in the stock, rather than a gain) is more
stark. Investors betting the stock would fall to at least $340
are sunk - those put options traded at $15.44 per contract
Monday - and now are worth just 54 cents.
In absolute numbers, since every options contract represents
100 shares, the 1,837 outstanding $340 weekly puts were worth
about $2.83 million at Monday's close. Now they're worth just
The action in the bullish call options suggests people see a
tougher road for Netflix to get to $400 a share. Several weekly
call options that were out of the money on Monday and are now
profitable on Tuesday have actually fallen in value, which is
not usual when options move into the money.
"It means you overpaid," said Andrew Wilkinson, chief market
strategist at Interactive Brokers in Greenwich, Connecticut.
"Premiums were boosted whether they were a put or call
because (traders) were frightened there might be a huge move,"
(Reporting by David Gaffen; Editing by Jan Paschal)