Front-month options are cheap on Netflix right now
Netflix, Inc. (NASDAQ:NFLX) has been a powerhouse on and off the charts, with the shares trading near their mid-April record high following yesterday's confirmation the streaming giant has inked a production deal with former President and First Lady Barack and Michelle Obama. What's more, the FAANG stock is sounding a rare signal that has had bullish implications in the past, suggesting it could be time to join NFLX on its next leg north.
Specifically, implied volatilities on the stock's front-month options are unusually low, from a volatility standpoint. Its Schaeffer's Volatility Index (SVI) of 26% ranks in the 5th percentile of its annual range, indicating short-term calls on NFLX stock have rarely priced in lower volatility expectations.
Additionally, Netflix stock was last seen trading up 0.3% at $332.94 -- not far from its April 18 all-time peak of $338.82. This is just more of the same for an equity that's more than doubled in value year-over-year, powered higher by support from its 50-day moving average. Plus, the shares are on track for their sixth straight monthly win, a feat last accomplished in the first half of last year.
This impressive price action could be far from over, too. According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been six other times since 2008 the stock has been trading within 2% of new 52-week highs while its SVI was ranked in the bottom 20th percentile of its annual readings. In the wake of these signals, Netflix was up, on average, 5.26% one month later, and was positive 67% of the time.
The stock could certainly stand to benefit from a round of well-deserved bullish brokerage attention. Of the 32 analysts covering Netflix stock, 14 still maintain a "hold" or "strong sell" rating, while the average 12-month price target of $333.24 is in line with current trading levels.
And those wanting to bet on more upside for the FAANG stock should certainly consider options. In addition to a low SVI, the equity's Schaeffer's Volatility Scorecard (SVS) reading stands at a lofty 96 out of a possible 100. This means NFLX has tended to make outsized moves relative to what the options market has priced in -- a boon to potential premium buyers.