Netflix (NFLX) - Vol Diff Opens; Skew Remains Parabolic

NFLX is trading $76.97, down 1.6% with IV30™ up 3.1%. The LIVEVOL® Pro Summary is below.



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Netflix, Inc. (Netflix) is an Internet subscription service streaming television shows and movies. The Company’s subscribers can watch unlimited television shows and movies streamed over the Internet to their televisions, computers and mobile devices, and in the United States, subscribers can also receive digital versatile discs (DVDs) delivered to their homes.

The stock just came up on a real-time custom scan. This one hunts for calendar spreads between the front two months.

Custom Scan Details
Stock Price GTE $5
Sigma1 - Sigma2 GTE 8
Average Option Volume GTE 1,000
Industry isNot Bio-tech
Days After Earnings GTE 5 LTE 70
Sigma1, Sigma2 GTE 1

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.



The goal with this scan is to identify back months that are cheaper than the front by at least 8 vol points. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not selling elevated front month vol simply because earnings are approaching.

Let's turn to the Skew Tab to illustrate the vol diff.



I note three phenomena here:

1. Most notably, the Nov monthly (yellow curve) options are priced well above he Dec (green curve) in terms of vol.
2. Both Nov monthlies and Dec show a parabolic skew shape -- reflecting both upside risk (potential) and downside risk greater than the ATM options.
3. Check out those Nov weekly options expiring on Friday. They have a ripping upside skew.


Now we can turn to the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).



On the stock side we can finally see a six-month window where NFLX stock actually looks like it provided positive returns. Of course, the stock was also over $300 less than two years ago.

On the vol side I do note an interesting vol diff between the implied and the two historical realized vols. In English, the implied vol is trading below both the long-term and short-term historical realized movement of the stock. Hmm...

Finally, let's look to the Options Tab (below).



Across the top we can see the monthly vols are priced to 67.10% and 57.25% or Nov and Dec, respectively. An interesting position to examine would be one that is long the Dec upside, funded by a sale of Nov weekly upside. If that position works, then selling the Nov monthly upside again to fund that long Dec option. Since NFLX has weekly options, hypothetically the position could be walked up a few more times to the point where the Dec upside was entirely funded by front expiry sales. Ya know, or not...

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