Netflix, Inc. (NASDAQ:NFLX) has surprised to the positive in each of the last seven quarters, so options investors may have an attractive opportunity coming up this month. In a report dated July 2, 2014, analysts Katherine Fogertey and John Marshall note that straddles around earnings are less expensive than the earnings move, possibly because of the stock’s high dollar price.

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As a result, they recommend the July 25 call to capture potential upside from Netflix’s earnings report on July 21. They say options imply a + / -9% move, compared to the average eight-quarter gain of + / -18%.

Netflix to double addressable market

Goldman Sachs analysts project Netflix’s total addressable market to more than double to 207 million over the next three years. Fogertey and Marshall’s associate Heath Terry upgraded the company to Buy recently, seeing an upside of 25% to his $590 per share price target. They see options as being attractive before Netflix releases its next earnings report. They say the July weekly straddle “captures earnings costs 11%.” This is less attractive than the company’s median eight-quarter earnings move of + / -14%.

The Goldman Sachs team is recommending Netflix’s July 25 weekly calls for $25.90, saying that this expresses their “bullish fundamental view” of the company.

Netflix expands rapidly

They note that Netflix is adding six more markets this year and two to four more markets each year after that. Assuming a 30% international penetration, compared to HBO’s 33% penetration, Netflix has the potential to reach 62 million international subscribers by 2017, which would drive margins of more than 20%, even while continuing to invest in expansion.

Terry also predicts that Netflix can grow its average revenue per user beyond the basic $8.99 per month plan by offering customized products across a broader platform.

Why they recommend Netflix calls

The Goldman Sachs team estimates that the July 25 weekly $475 straddle call would cost 14% if implied volatility on Netflix was around 68%, which is the average. They say options reflect a “lower than usual earnings move” and that the one month normalized skew is at “average levels” for the last year. They say this suggests that options investors aren’t overly bullish or bearish.

The reason they recommend the $475 strike calls with a 51 delta and .4% out-of-the-money call is because it offers almost a 2.5 to 1 payout if Netflix stock trades up 14% on earnings. This would be in line with the media eight-quarter earnings move. If shares trade up 18%, which would be average, this call would offer a 3 to 1 payout. They note that call buyers risk losing their premium if the stock closes under the strike price when the call contract expires.

Why Netflix options are low

The analysts further explain why they think option prices for Netflix before the company’s earnings report are low is because of how high the dollar value of the stock is. They think investors could be hesitating buying options before the quarter because of the high dollars involved.