| NEW YORK
NEW YORK Options traders are bracing for about a 10 percent move up or down in Netflix Inc shares after the video streaming service reports results after the closing bell on Wednesday.
Bearish bets in the options market had been picking up in recent days until Tuesday, when some more bullish positioning was seen for the stock, which was the S&P's best performer last year.
The stock is known for volatile moves after earnings results and some see it ripe for a correction after its 298 percent gain in 2013. The S&P's second-best gainer last year, Best Buy, fell 30 percent after announcing disappointing holiday sales last week.
The ratio of bearish put options to bullish call options in Netflix was 1.03 for the past 10 days, higher than 68 percent of the readings over the past year, according to data by Schaeffer's, suggesting protective buying has picked up in the days leading to its results.
"The sentiment for the past few days have been somewhat bearish with more put buying than calls but I think they (puts) are mostly hedges rather than outright bearish bets considering this (stock) is the biggest gainer last year," said Ryan Detrick, analyst at Schaeffer's Investment Research in Cincinnati, Ohio.
"This is a name that you can't get totally bearish but definitely need protection."
On Tuesday, one day before results, when options activity usually spikes, the largest changes in open interest were in February call options at the $400 and $380 strike prices. The $380 calls are nearly 15 percent higher than the current $332.80 price, suggesting some are still betting on more gains for the stock.
The most popular options contracts on Wednesday were January $330 at-the-money calls and puts that expire Friday, as well as February $330 calls and February $280 puts.
The stock jumped 42 percent one day after reporting earnings in January 2013, and more than 24 percent when it reported in April. The next two reports were more muted - with one-day losses of 4.5 percent and 9.1 percent, respectively.
Expectations are high going into the announcement for a company that by some valuation measures is already quite overvalued. Analysts expect a gain of about 2 million U.S. subscribers in the latest quarter and forecast a net income of $41 million, five times higher than the $8 million it recorded a year earlier.
According to StarMine, a unit of Thomson Reuters, Netflix's intrinsic value is about $61 a share, making it more overvalued than 98 percent of the stocks in StarMine's universe. The intrinsic value is determined by expected growth over the next decade.
"The risk reward is more to the downside than upside. When the stock is this strong, it's like catching a falling knife," said J.J. Kinahan, chief strategist at TD Ameritrade in Chicago.
"What's going to be more interesting is not the earnings numbers, but going forward, how are they going to compete with their rivals. The stock could see more moves after the CEO earnings call," Kinahan said.
Options volume jumped with just a couple of hours to go until the earnings announcement. More than 25,000 calls and 22,000 puts exchanged hands by midday trade, compared with a daily trading average of 61,000 contracts.
(Reporting by Angela Moon; editing by Andrew Hay)