Wednesday, January 8, 2014

Netflix (NFLX) - The Option Market Fell Asleep; We Knew It; Then it Woke-up; We Knew That Too.

NFLX is trading $342.89, up 1.0% with IV30™ unchanged. The Symbol Summary is included below.

Provided by Livevol

This is a follow up to an article I wrote on 12-21-2013. You can read that post by clicking on the title below:

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

The title says it all, but here's a very quick recap of that article before we move to today:

[T]he option market continues to tell a story that does not seem to be true. And here it is...

[W]e see how NFLX implied volatility continues to drop to new multi-year lows. I don't know if NFLX is going higher or lower, or if the market is going higher or lower, but this does not feel like a time when NFLX the company in and of itself is facing the lowest risk it has in the last several years.

Now to today

The Charts Tab (two-years) is included below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

On the stock side we can see both the remarkable recovery (NFLX was a top performer in the S&P 500 last  year), and we can also the recent dip.  In fact yesterday, NFLX was down $20.07 (5.65) on a downgrade.  I have include the Symbol Summary from yesterday's close, below.

Provided by Livevol

Note the stock drop and the volatility rise (9.4%). Let's focus on the volatility some more and turn to the IV30™ chart in isolation, below.

Provided by Livevol

The yellow circle represents the level of the IV30™ from that first post on 12-21-2013.  Note the rise since then.  I have included the sae chart but over a three-month period for a clearer view of the recent move.

Provided by Livevol

The IV30™ has risen from 33.76% (12-21-2013) to now 45.10%, or a 34% rise in just three weeks.  AS I said on 12-21-2013, "the Option Market is Still Asleep. What Happens When it Wakes Up?" Let me show you.

The Options Tab from today and from 12-21-2013 are included below, respectively.


Provided by Livevol


Provided by Livevol

On 1-21-2013: The $380 strike straddle was the ATM on 12-21-2013 as was worth: $11.60 + $15.80 = $27.40.

Today: That same straddle is worth: $36.00 + $0.30 = $36.30.

That means the straddle has increased in value 32.5%.  So that's what happens when the option market wakes up.  And I still thing it's just groggy right now, not quite awake.

This is trade analysis, not a recommendation.

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