Netflix (NFLX) - Unprecedented Low Risk?... How Many Times Will the Option Market Prove Wrong? And is it Right This Time?

NFLX is trading $437.89, up 2.1% with IV30™ up 1.9%. The Symbol Summary is included below.

Provided by Livevol

NFLX is now at a new all-time high.

This is a follow up to the two articles posted prior to NFLX earnings and the one just after. You can read the prior posts by clicking on the titles. The article names in and of themselves summarize the content, as do the stock prices.

The bottom line is this: NFLX options have been priced at multi-year lows (in terms of volatility) yet the stock continues to move with great volatility.  We saw this specific to earnings in the 1-21-2014 post where I asked:

"Less Risk in This Firm Now than In the Last Two-Years." Do You Agree? I'm Not Sure I Do." Two days later the stock was $60 higher.

And where do we find ourselves now... The same place...

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12-27-2013: 

Netflix (NFLX) - UPDATE: The Giant Killer is a Giant, But the Option Market is Still Asleep. What Happens When it Wakes Up?


Provided by Livevol

1-21-2014: 
Netflix (NFLX) - Earnings Preview: "Less Risk in This Firm Now than In the Last Two-Years." Do You Agree? I'm Not Sure I Do.


Provided by Livevol

1-23-2014: 
Netflix (NFLX) - Earnings Blowout; But the Story is Not Over. Stock is Still in Play.


Provided by Livevol

The bottom line was that NFLX implied volatility (risk as reflected by the option market) was just too low.  we're talking well before earnings, and then the day before as well.
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Let's start with the Charts Tab (two-years) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

We can see NFLX is now at an all-time high, with a market cap over $26 billion.  I've said this for a while, while there is enormous risk in this firm as seen when it dropped 70% a few years ago and faced the very real possibility of obsolescence, this could also end up being a $50 billion company with almost unprecedented power in the industry.  To read about that "stuff" you can check out an older post here:

Netflix (NFLX) - Is this the Most Powerful Firm in Entertainment? Some Things I Bet You Didn't Know... But Want to.

In any case, with the stock up 140% over the last year, there is risk to both sides... it's almost a tautology... Or is it?

I'll tell you one place that illustrates a great disagreement with my last statement... The option market.

Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

I must sound like a broken record by now, but look at the implied volatility level for NFLX right now... it's again at multi-year lows.

The stock is up 260% in two-years, 140% in one-year, trades at 236:1 P/E, just announced more subscribers than HBO and may have the most anticipated second season of TV of the year (House of Cards).

Lower risk than the last two-years?... Come again?...

Is there risk NFLX doesn't grow as fast as anticipated?
Is there risk its hot streak (operationally) ends?
Is there risk that it continues?
Is there risk NFLX outperforms even these magical numbers?

Are any of these risks at multi-year lows?  I dunno, but the option market believes they are.

Finally, the Options Tab is included below.

Provided by Livevol

Across the top we can see that Feb vol is priced to 30.75% while Mar is priced 33.59%.  Note that Jun, Sep and Jan'15 are all priced above 42%.  So what's so "not risky" about NFLX (in either direction) for the next two months?...

Ya know, I have no idea...

This is trade analysis, not a recommendation.

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