Thursday, January 23, 2014

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

NFLX closed Thursday trading at $388.72, up 16.5% with IV30™ down 34.8% on earnings. The Symbol Summary is included below.

Provided by Livevol

This is a follow up to the two articles posted prior to NFLX earnings. You can read the prior posts by clicking on the titles. The article names in and of themselves summarize the content:

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

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.

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.

Here's how the Stock Symbol looked on 1-21-2014:

Provided by Livevol

But here's the thing.  This story isn't over IMHO.  The volatility collapsed today as it should after an earnings release.  But the vol was already ow (for earnings) as the 1-21-2014 article pointed out.  And now... The vol may be too low for a non-earnings period.

Check out the two-year IV30™ below.

Provided by Livevol

I have drawn in that yellow horizontal line backward right at the closing level today.  IV30™ is basically back to two-year lows.  You tell me.. With a stock that was $369 on 12-27, then $323 on 1-21 and now is $388.72 (an all-time high)... would you expect the option market to reflect the lowest risk over the last tow-years?..

Me either...

I have included the Options Tab below for completeness.

Provided by Livevol

Across the top we can see Feb, Mar and Apr vols are priced to 35.43%, 35.80% and 36.27%, respectively.  I guess we'll see...

This is trade analysis, not a recommendation.

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  1. How do you recommend someone to learn and analyze like you. Any mentoring or coaching you recommend or any books

  2. Natenberg books are the standard: Option Volatility & Pricing: Advanced Trading Strategies and Techniques