Wednesday, August 14, 2013

Netflix (NFLX) - Volatility Dips; Option Market Reflects Lowest Risk in Two Years

NFLX closed Tuesday trading at $259.19, up 1.0% with IV30™ down 5.3%. The LIVEVOL® Pro Summary is below.

Netflix, Inc. (Netflix), incorporated on August 29, 1997, 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.

I found this stock using a real-time custom scan. This one hunts for depressed vols. Much to my surprise, NFLX implied volatility has just fallen below multi-year lows which means the option market reflects that NFLX stock is less risky now than anytime in the last two-years.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The two-year NFLX Charts Tab is included (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 see the come back story of a lifetime with the stock bouncing back from a low of $53.05 on 9-26-2012 to now nearly 500% that level in less than a year. Oh my how the mighty had fallen, and how mighty the rise is again. Just a breathtaking recovery with an incredible job done by upper management to not go the route of the music industry, friendster, myspace, etc. The innovated and the have been rewarded handsomely for it.

It's this stock rebound that makes the volatility story all the more compelling. Let's turn to the two-year IV30™ chart in isolation, below.

We can see with the implied closing at 35.96%, that NFLX vol is now at multi-year lows. Huh?... Is there less risk now in NFLX shares than there has been in the last two-years? Maybe there is...

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

Across the top we can see that Sep vol is priced to 35.96% while Oct is priced to 37.31%. That Oct vol is the interesting one. If VIX stays at these multi-year low levels then the systematic risk in the market may in fact keep NFLX vol down... But, if Oct (or Sep) show abrupt moves in the market, a 20% VIX isn't exactly hard to grasp, and if that happens, where does vol for the stock up 400% go? I would say, not to multi-year lows... Then again, VIX could go to 10%... or stay right here.

This is trade analysis, not a recommendation.

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