Netflix received a price target cut from analysts at Nomura, who warned that the company may begin to disappoint in subscriber numbers. Concerns arising from that report triggered an increase in bearish options purchases as well.
Bearish Netflix options buying rises
Schaeffer’s Investment Research reported today that the volume of bearish options on Netflix shares soared today. As of the time when the firm released its report, about 41,000 puts had changed hands, which was about 1.3 times the usual afternoon pace. Schaeffer’s said the most popular option was the 6/24 92-strike put, which apparently saw “buy-to-open action.” Picking up puts to open mean that buyers expect Netflix shares to tumble below $92 through the close of trading on Friday.
The firm reports that purchasing puts is a major shift in the trend for Netflix options traders as the stock’s 10-day call/ put volume ratio was 1.52, which is better than 89% of all other readings over the last year. Schaeffer’s also reports that over the last two weeks, options traders were snapping up bullish options on Netflix even faster than usual, meaning that the bulls had gotten even more bullish in the last two weeks.
Additionally, Netflix had a 32% reading on Schaeffer’s Volatility index, which is higher than only 4% of all the other readings over the last 12 months, which means that short-term options premiums are especially attractive right now.
At least for now anyway, it looks like the bears have it on Netflix as the stock tumbled by as much as 2.46% to $91.49 during regular trading hours on Tuesday, making that 6/24 92-strike put look very attractive indeed, especially if the share price falls further.
Netflix price target cut by Nomura
What triggered the bearish options activity was probably the price target cut by Nomura analyst Anthony DiClemente on Monday. He trimmed his target from $125 to $115 per share but maintained his Buy rating on the stock. He warned that Wall Street may be expecting too much from Netflix in terms of subscribers. For one thing, he thinks the company faces difficult comparisons in international markets in the second half of this year as it launched in Japan in the third quarter of last year and Southern Europe in the fourth quarter of last year. He warns that international subscriber growth could begin to decelerate.
Then he turned to Netflix’s home market and warned about potential subscriber problems there as well. He said a recent survey suggests that the company could lose nearly 500,000 subscribers when those who were grandfathered into the price increase see their monthly subscription price increase. In the long term though, he still believes in Netflix’s business model and remains positive on the company because he believes that it will “continue to accrue significant scale benefits as it further entrenches its position as the dominant global distributor of content.”