Traders bet Netflix stock drama may be ending

Option traders are positioning for a potential end to the recent volatility in Netflix stock ahead of its earnings release. Current options pricing implies a 9% move in the shares following the report, a level that marks the highest implied volatility since the company's third-quarter 2022 results. During that prior period, the market was priced for an 11% swing, but Netflix shares ultimately surged 13%, beating the implied move.

The current market sentiment contrasts with the stock's recent trajectory, which has seen shares decline nearly 50% from their all-time highs. This downturn has been accompanied by executive turnover, corporate layoffs, and a failed takeover bid. Historically, Netflix shares have experienced a median move of 7.25% over the last eight quarters, a pattern that has often resulted in quarterly disappointment for investors. However, recent trading activity indicates a shift toward optimism as the company approaches its earnings announcement.

Trading data as of 12 p.m. ET on Tuesday reveals a distinct bullish bias in options flows. One-and-a-half times more call contracts were purchased than put contracts, while puts were sold in volumes exceeding 150% of the average daily volume. Selling puts is generally considered a bullish strategy, and six of the ten most-bought contracts on the tape were calls. Five of these call contracts expire on Friday, suggesting traders are looking for a near-term rebound.

The largest single trade identified on Netflix's tape involved the sale of a string of put options with an expiration date of November 20. This transaction totaled approximately $2 million. Because these contracts are at-the-money, the trade represents a significant vote of confidence in the stock's ability to stabilize or rise ahead of the earnings print.

Additional activity was observed in call options expiring on Friday. Traders purchased more than 3,500 of these contracts, paying over $210,000 in premium. For these specific call options to reach breakeven, Netflix stock would need to surge at least 20% by Friday. This required gain is more than double the upside implied by the current options market, indicating that some traders are betting on a substantial reversal of the company's recent losing streak.